The loss of human capital will make it difficult to harness remittances for the purpose of spurring national development
Posted By Stabroek staff On July 14, 2009 @ 5:06 am In Letters | 19 Comments
Dear Editor,
There is an interesting discussion underway with reference to remittances and their impact on our economy, and I have been reading Dr Prem Misir, Emile Mervin, Dr Tarron Khemraj (in particular his SN column, July 8) and a recent letter by one Kimberly James on this issue (KN and GC July 10). I rather suspect the latter to be from the Ghost-writers Club (GC). Kimberly James’ arguments are text book and coherent, with the exception of one off-target insinuation that there is someone out there that spits on remittances. In my reading I cannot figure out who is meant by that remark, clearly meant to target someone – that notwithstanding, the general thrust of ‘her’ letter is worth responding to.
Unfortunately, I did not ascertain any effort on Dr Misir’s part, nor Ms James’, in dealing with Guyana’s country specifics as Dr Khemraj did. General references were made by Dr Misir to India, China, Mexico, Latin America and the Caribbean, and by Ms James to the Eastern Europe and Central Asia (ECA) region, citing Egypt, India, Mexico, Portugal and Turkey as the countries that have incorporated remittances as a developmental tool for long-term sustainable development.
Guyana is quite unlike these countries in many ways, and India in particular has a surplus of engineers and other professional, first-rate engineering and business schools, and first-rate universities such as the University of Delhi. Guyana on the other hand, has a struggling university that does not serve our national interest as it could, and exports 83% of its skilled population. We therefore have an extreme dearth of engineers and professionals that is becoming ever increasingly profound with each departing flight out of CBJ, Timehri. Clearly, this ongoing haemorrhage of human capital will make harnessing remittances most difficult to spur national development – more especially, in the bid to serve long-term goals.
Presently, remittances are not causing large-scale production as there is no mechanism that mobilizes the small amounts to a large investment even though in aggregate, remittances exceed FDIs (Foreign Direct Investments). I was therefore most relieved that so far I couldn’t glean any disagreement in the discussion that FDIs are less important than remittances. However, given the present global economic situation exacerbated by our local state of corruption, crime, unreliable and insufficient electrical power and a lack of skills, it is not entirely surprising that FDIs are not easy to come by.
I find also Ms James’ multiplier argument to be very weak in our specific circumstances because of the high levels of imports (consumer goods, fuels and lubricants). This simply means that a lot of the foreign exchange gained from remittances is pretty much repatriated immediately, as opposed to being stimulatingly utilised within our economy. Again, under these Guyana specific circumstances, one wonders on the effectiveness of long-term remittances policies without sufficiently addressing this. The government has however become proactive on the alternative energy issue, albeit belatedly, and I do look forward to their success.
I doubt whether there would be any opposition from sensible quarters to me saying that it would be profoundly better for us to try to keep our skills at home, as opposed to relying on these persons to send what they can from the countries they are helping to build, such as Trinidad and Barbados (the latter which most abhorrently harasses and shows disdain for us because of our own disgraceful domestic situation).
I am worried about us resting on our laurels just because remittances have become so high – World Bank estimates place it at a little over 20% of our GDP, while other estimates that include barrels and hand delivered cash, are as high as 40%. I believe unharnessed remittances contribute to our social ills, one of which can be exemplified by the prevalence of the street corner limer who is reluctant to work, and often has other socially debilitating vices. Another social ill stems from the ruling elite and friends having ready access to the increased foreign exchange garnered from remittances to support their lifestyle. Their type of living is an incentive to crime and corruption as other sections of the society feel the urge to do likewise (no longer seeing the virtues of hard work and honest living). These local phenomena would be most appropriate for UG to research.
Foreign economic downturns and remittance fatigue (which I predict if social values continue to spiral downward) could cause shocks to our economy. We would without doubt be better off not being as reliant on remittances as we are now, and I would be careful about loudly touting the benefits while so much else is left undone – especially the shortage of human capital.
I am most certainly not knocking remittances, nor the potential to further our development, and I commend both Ms James and Dr Khemraj for presenting ideas on harnessing them. Dr Khemraj urges the government to come up with a comprehensive plan to engage the diaspora which can include knowledge transfer (brain gain or brain circulation), inward diaspora investments, and even special diaspora financial products (it therefore could not have been him that spat on remittances, and I would be grateful, if Ms James could qualify her statement). Ms James proposes financial incentive schemes to increase the volume of remittances via commercial banks, matching the development investments of migrant associations with government funds, and improving the investment climate for small and medium enterprises. She is also keen to engage the diaspora. However, as Dr Khemraj noted, the main constraint is the lack of business investment demand, which goes back to the shortage of human capital.
I would be most interested in Dr Misir’s take on the specific issues raised, since he can give a clearer idea of the government’s strategy to deal with our local specifics. Remittances have been significant for quite a few years now and since it is better late than never, kudos to the government for finally lending some thought to its harnessing – the AFC, almost four years ago, had made this a pivotal part of its elections campaign.
Yours faithfully,
Gerhard Ramsaroop
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Wednesday, July 15, 2009
Monday, July 13, 2009
President Jagdeo, Patrice Lumumba University and an alleged superiority?
Could Mr. Mc Coy define the President’s superiority?
July 13, 2009 | By Renee | Filed Under Letters
Dear Editor,
I refer to an article in the on line edition of the Guyana Chronicle, July 11th, 2009, headed “AFC’s electioneering strategy” in which reference was made to statements made by the President’s Press and Publicity Officer on the question of the invitation to debate the President issued by Mr. Raphael Trotman, AFC’s leader.
Mr. Mc Coy is reported as saying, the President “…would only accept a challenge to debate an intellectual equal. Someone of less mental stature would not present enough of a challenge….and thus the exercise would be a time-wasting one.”
I am curious to find out if it is the birth of the President at Unity, Mahaica, his attendance at Bygeval High School, followed by his attendance at Patrice Lumumba University, thereafter his employment at the State Planning Secretariat under the guidance of Mr. Haslyn Paris, followed by his appointment as Junior Finance Minister, later Finance Minister, and subsequently his anointment as presidential candidate of the PPP based on his youth, are the bases which conferred upon him the status of intellectual or intellectual superior?
I must confess that the publication of the President’s research papers, recognition as leader in his field and his outstanding and unmatched contributions in the fields of some defined academic endeavour, have escaped me.
Further, could Mr. Mc Coy say whether the President’s intellectual superiority is inherent in his, status at birth, religion, ethnicity or caste?
I look forward to Mr. Mc Coy’s enlightenment on this matter.
Lin-Jay Harry-Voglezon
July 13, 2009 | By Renee | Filed Under Letters
Dear Editor,
I refer to an article in the on line edition of the Guyana Chronicle, July 11th, 2009, headed “AFC’s electioneering strategy” in which reference was made to statements made by the President’s Press and Publicity Officer on the question of the invitation to debate the President issued by Mr. Raphael Trotman, AFC’s leader.
Mr. Mc Coy is reported as saying, the President “…would only accept a challenge to debate an intellectual equal. Someone of less mental stature would not present enough of a challenge….and thus the exercise would be a time-wasting one.”
I am curious to find out if it is the birth of the President at Unity, Mahaica, his attendance at Bygeval High School, followed by his attendance at Patrice Lumumba University, thereafter his employment at the State Planning Secretariat under the guidance of Mr. Haslyn Paris, followed by his appointment as Junior Finance Minister, later Finance Minister, and subsequently his anointment as presidential candidate of the PPP based on his youth, are the bases which conferred upon him the status of intellectual or intellectual superior?
I must confess that the publication of the President’s research papers, recognition as leader in his field and his outstanding and unmatched contributions in the fields of some defined academic endeavour, have escaped me.
Further, could Mr. Mc Coy say whether the President’s intellectual superiority is inherent in his, status at birth, religion, ethnicity or caste?
I look forward to Mr. Mc Coy’s enlightenment on this matter.
Lin-Jay Harry-Voglezon
Saturday, July 11, 2009
President Jagdeo and drug lords
Jagdeo refuses public debate with Trotman
July 11, 2009 | By osafo | Filed Under News
President Bharrat Jagdeo does not debate with political aspirants, such as those residing in the Alliance For Change, especially since they do not command widespread support among the Guyanese public.
This is according to a statement issued by Press Officer for the president, Kwame Mc Coy, who in a statement last evening said that President Jagdeo is only inclined to debate with his equals.
Raphael Trotman
Raphael Trotman
“The President would hope that the AFC come clean on the matters he (Jagdeo) publicly raised, implicating the leadership of that party in shading dealings.”
Mc Coy was responding to an open challenge to the President for a public debate on his constant allegations against the party as it relates to affiliations to drug dealers.
Trotman was hoping for a debate where, he said, the facts and evidence could be presented before the public by both the President and the AFC leader.
The AFC leader, in the party press briefing, expressed his disappointment that the nation’s Head of State has nothing better to do than “to blatantly accuse the AFC of baseless statements while failing to disclose to the nation the massive Government corruption as evident by the numerous Auditor General and International reports.”
The President continues to try to link the term “drug money” to the AFC, when all in the local and the international communities are aware of this false accusation, Trotman said.
“The President needs to clean his own house before throwing stones at others. The Roger Khan saga has seen his Government and Ministers named as part of the drug system, while no major drug lord has been prosecuted in Guyana.”
According to Trotman, the Minister of Home Affairs and the Police Commissioner have said that they will wait until the US shares information before starting any investigation on the drug convicts that have confessed.
“These same individuals operated for many years in Guyana prior to their arrest by US authorities, and were seen in the presence of the Head of State and other senior officials. The President must come clean on what he knows about those drug lords and his Government’s involvement.”
He noted that the President, up to now, has failed to answer queries about the hundreds of citizens that were killed by ‘phantom gangs’ and for the many who have been tortured by ranks of the Joint forces.
He added that the National Drug Policy has been shelved and no implementation plans are evident.
“Why is this so? What does the Government have to hide?”
Trotman added that the President has now taken his remarks to a personal level against the Leader of the AFC and the party’s Chairman Ramjattan.
“These are libelous remarks that will be addressed in a court of law.”
It was pointed out that Jagdeo needs to put his Government in order or face corruption charges.
“He demonstrates on a daily basis why he is not fit to run our nation. If he would spend as much energy as he is expending on the AFC, we may see marked improvements in Guyana.”
July 11, 2009 | By osafo | Filed Under News
President Bharrat Jagdeo does not debate with political aspirants, such as those residing in the Alliance For Change, especially since they do not command widespread support among the Guyanese public.
This is according to a statement issued by Press Officer for the president, Kwame Mc Coy, who in a statement last evening said that President Jagdeo is only inclined to debate with his equals.
Raphael Trotman
Raphael Trotman
“The President would hope that the AFC come clean on the matters he (Jagdeo) publicly raised, implicating the leadership of that party in shading dealings.”
Mc Coy was responding to an open challenge to the President for a public debate on his constant allegations against the party as it relates to affiliations to drug dealers.
Trotman was hoping for a debate where, he said, the facts and evidence could be presented before the public by both the President and the AFC leader.
The AFC leader, in the party press briefing, expressed his disappointment that the nation’s Head of State has nothing better to do than “to blatantly accuse the AFC of baseless statements while failing to disclose to the nation the massive Government corruption as evident by the numerous Auditor General and International reports.”
The President continues to try to link the term “drug money” to the AFC, when all in the local and the international communities are aware of this false accusation, Trotman said.
“The President needs to clean his own house before throwing stones at others. The Roger Khan saga has seen his Government and Ministers named as part of the drug system, while no major drug lord has been prosecuted in Guyana.”
According to Trotman, the Minister of Home Affairs and the Police Commissioner have said that they will wait until the US shares information before starting any investigation on the drug convicts that have confessed.
“These same individuals operated for many years in Guyana prior to their arrest by US authorities, and were seen in the presence of the Head of State and other senior officials. The President must come clean on what he knows about those drug lords and his Government’s involvement.”
He noted that the President, up to now, has failed to answer queries about the hundreds of citizens that were killed by ‘phantom gangs’ and for the many who have been tortured by ranks of the Joint forces.
He added that the National Drug Policy has been shelved and no implementation plans are evident.
“Why is this so? What does the Government have to hide?”
Trotman added that the President has now taken his remarks to a personal level against the Leader of the AFC and the party’s Chairman Ramjattan.
“These are libelous remarks that will be addressed in a court of law.”
It was pointed out that Jagdeo needs to put his Government in order or face corruption charges.
“He demonstrates on a daily basis why he is not fit to run our nation. If he would spend as much energy as he is expending on the AFC, we may see marked improvements in Guyana.”
Ghost writer, Kimberly James, unable to refute Khemraj on remittances to Guyana
Remittances facilitate long-term development for poor countries
July 10, 2009 | By Ananthsa | Filed Under Letters
Dear Editor,
Guyanese need to understand the importance of remittances and its contribution towards development. The effects of remittances on development are not a one way road, but instead entail both positives and negatives. The trick is to master the art on the utilisation of remittances to sustain long-term development.
Today, developing countries hold high hopes in the benefits that remittances have to offer, and remittances now account for more than 10% of the Gross Domestic Product (GDP) of these countries and are of high importance to their national economies.
Developing countries like Guyana depend on remittances as one factor in its developmental process and this is not wrong. Remittances into Guyana rose from US$29.2 million at the end of 2000 to US$225.9 million at the end of 2006. Remittances account for the second largest source of foreign finance after private capital flows.
Remittances are the major financial source for most developing countries and are key players in cushioning the impact of the economic crisis today. Migrants from developing countries are seen as the providers of human and financial capital to their homelands. Remittances also contribute to positive long-term macroeconomic growth patterns and are a key source of foreign exchange for Caribbean countries.
Being a significant source of foreign exchange, remittances can serve as a pillar to support and improve credit worthiness and access to international capital markets for many countries in the ECA region. Unlike capital flows, remittances do not create debt servicing or other obligations. Instead, they provide financial institutions with access to better financing than might otherwise be available. Remittances are one of the defining factors of exchange rate dynamics in Caribbean and other developing countries and as a consequence create macroeconomic policy in the small economies.
Remittances positively impact poverty and inequality and also influence investment, growth, and macroeconomic stability of developing nations. Remittances supplement national income and aggregate demand as a whole, and can lead to economic growth simply by increasing the migrant’s household income; whether through increased consumption, savings or investments.
Remittances have a positive impact on productivity and employment, both directly and indirectly through their effect on investment and contribute to household income and reducing poverty. Poor families benefit from migrants’ remittances. In the 1990s, Egypt, India, Mexico, Portugal and Turkey were the main remittance-receiving countries; and over the years, these countries have incorporated remittances as a developmental tool for long-term sustainable development.
When migrants invest in their home country, local people benefit and production is stimulated. Remittances are used to cover expenses over food, clothing and healthcare. Funds can be used to improve housing, buy land, repay loans, etc. Even though these investments may seem small, they should be considered as large amounts in absolute terms because of the large and growing amount of remittance transfers. Sending and receiving remittances are not only an economic transaction, but a form of exchange between individuals that takes place in a fairly intricate social context; some may remit for altruistic reasons, while others remit for self-interest.
Because of the growing importance of remittances, Governments need to develop strategies to increase the development effects of remittances.
This should include financial incentive schemes to increase the volume of remittances via commercial banks, matching the development investments of migrant associations with government funds, and improving the investment climate for small and medium enterprises.
The Banking system of developing countries should cater for the implementation of special remittance programmes for their Diaspora members, since remittances are a source of potential profits generated by a rising level of cross-country money transfer business and also serve as a promising channel to reach migrants as regular customers in the future.
Remittances strengthen grassroots banking and have a multiplier effect, providing a host of banking incentives for developing countries; and remittances can access banking conduits in the home countries with attractive incentives to their Diaspora people. This is one way in which banks can use remittances for long-term development.
And so, we must not spit on remittances as if it is wrong because clearly any developing country is dependent on it to maintain a sound macroeconomic environment and to improve the standard of living among the ordinary people. There is more I want to say, but I will leave the rest for another letter.
Kimberly James
July 10, 2009 | By Ananthsa | Filed Under Letters
Dear Editor,
Guyanese need to understand the importance of remittances and its contribution towards development. The effects of remittances on development are not a one way road, but instead entail both positives and negatives. The trick is to master the art on the utilisation of remittances to sustain long-term development.
Today, developing countries hold high hopes in the benefits that remittances have to offer, and remittances now account for more than 10% of the Gross Domestic Product (GDP) of these countries and are of high importance to their national economies.
Developing countries like Guyana depend on remittances as one factor in its developmental process and this is not wrong. Remittances into Guyana rose from US$29.2 million at the end of 2000 to US$225.9 million at the end of 2006. Remittances account for the second largest source of foreign finance after private capital flows.
Remittances are the major financial source for most developing countries and are key players in cushioning the impact of the economic crisis today. Migrants from developing countries are seen as the providers of human and financial capital to their homelands. Remittances also contribute to positive long-term macroeconomic growth patterns and are a key source of foreign exchange for Caribbean countries.
Being a significant source of foreign exchange, remittances can serve as a pillar to support and improve credit worthiness and access to international capital markets for many countries in the ECA region. Unlike capital flows, remittances do not create debt servicing or other obligations. Instead, they provide financial institutions with access to better financing than might otherwise be available. Remittances are one of the defining factors of exchange rate dynamics in Caribbean and other developing countries and as a consequence create macroeconomic policy in the small economies.
Remittances positively impact poverty and inequality and also influence investment, growth, and macroeconomic stability of developing nations. Remittances supplement national income and aggregate demand as a whole, and can lead to economic growth simply by increasing the migrant’s household income; whether through increased consumption, savings or investments.
Remittances have a positive impact on productivity and employment, both directly and indirectly through their effect on investment and contribute to household income and reducing poverty. Poor families benefit from migrants’ remittances. In the 1990s, Egypt, India, Mexico, Portugal and Turkey were the main remittance-receiving countries; and over the years, these countries have incorporated remittances as a developmental tool for long-term sustainable development.
When migrants invest in their home country, local people benefit and production is stimulated. Remittances are used to cover expenses over food, clothing and healthcare. Funds can be used to improve housing, buy land, repay loans, etc. Even though these investments may seem small, they should be considered as large amounts in absolute terms because of the large and growing amount of remittance transfers. Sending and receiving remittances are not only an economic transaction, but a form of exchange between individuals that takes place in a fairly intricate social context; some may remit for altruistic reasons, while others remit for self-interest.
Because of the growing importance of remittances, Governments need to develop strategies to increase the development effects of remittances.
This should include financial incentive schemes to increase the volume of remittances via commercial banks, matching the development investments of migrant associations with government funds, and improving the investment climate for small and medium enterprises.
The Banking system of developing countries should cater for the implementation of special remittance programmes for their Diaspora members, since remittances are a source of potential profits generated by a rising level of cross-country money transfer business and also serve as a promising channel to reach migrants as regular customers in the future.
Remittances strengthen grassroots banking and have a multiplier effect, providing a host of banking incentives for developing countries; and remittances can access banking conduits in the home countries with attractive incentives to their Diaspora people. This is one way in which banks can use remittances for long-term development.
And so, we must not spit on remittances as if it is wrong because clearly any developing country is dependent on it to maintain a sound macroeconomic environment and to improve the standard of living among the ordinary people. There is more I want to say, but I will leave the rest for another letter.
Kimberly James
Ghost writer, Elizabeth Daly misses the point of T. Khemraj's arguments on remittances to Guyana
Remittances complementing other sources of capital
July 11, 2009 | By Christopher | Filed Under Letters
DEAR EDITOR,
It is impossible to ignore the positives that remittances offer to the development of poor nations like Guyana. The reality is that, developing countries depend on remittances for the benefit of their people and the spin-offs from the multiplier effects are important.
Remittances are not the only financial source for developing countries, but it should be seen as another branch on the tree complementing the other sources of support. The multiplier effect of remittances should be promoted and any negative spin on the positives of remittances is unintelligent. Today, nitpickers are trying to contend that remittances only benefit pro-government people; I must say, this thinking has reached the peak of ignorance.
Remittances have been claimed as not being critical towards the development of Guyana. It is obvious that this is flawed rationale for remittances, which are seen as competing with other financial avenues; instead, it must be seen as a complementing financial source working together with the other sources to achieve long-term growth and development for the country.
When people spend remittances on basic needs, retail sales are boosted and will then demand more goods and services which will fuel output and unemployment. Remittances should be seen as a tool used to balance the inequalities caused by the decline in output experienced by developing countries, loss of trade opportunities and emigration.
Remittances can boost a country’s Gross National Product and can assist by reducing the shortage of foreign exchange, counterbalancing the balance of payments deficits. The positive outcomes of remittances on production, inflation and imports will depend on how they are spent and invested.
Migrant remittances are a very stable financial source for developing countries and even though they might not be as important as foreign direct investments (FDIs), they do however, surpass the amount of FDIs received, development assistance, and capital market flows.
And remittances are beginning in countries like India, China, Jamaica, etc., to be perceived as a long-term development tool; and some of the more relatively recent recipients of remittances, like Guyana, St. Vincent and the Grenadines, are restructuring aspects of their financial system to make remittances more attractive to donors in the Diaspora; and this would include creating banking incentives that would be mutually attractive to both donors and recipients.
Remittances to developing countries have reduced inequality and poverty and have increased growth and development. They also help to reduce poverty, level consumption, create jobs, provide working capital, etc., and afford people living in developing countries to invest in human capital, such as, education, health and better nutrition. Remittances are fast becoming a tool for long-term development.
Elizabeth Daly
July 11, 2009 | By Christopher | Filed Under Letters
DEAR EDITOR,
It is impossible to ignore the positives that remittances offer to the development of poor nations like Guyana. The reality is that, developing countries depend on remittances for the benefit of their people and the spin-offs from the multiplier effects are important.
Remittances are not the only financial source for developing countries, but it should be seen as another branch on the tree complementing the other sources of support. The multiplier effect of remittances should be promoted and any negative spin on the positives of remittances is unintelligent. Today, nitpickers are trying to contend that remittances only benefit pro-government people; I must say, this thinking has reached the peak of ignorance.
Remittances have been claimed as not being critical towards the development of Guyana. It is obvious that this is flawed rationale for remittances, which are seen as competing with other financial avenues; instead, it must be seen as a complementing financial source working together with the other sources to achieve long-term growth and development for the country.
When people spend remittances on basic needs, retail sales are boosted and will then demand more goods and services which will fuel output and unemployment. Remittances should be seen as a tool used to balance the inequalities caused by the decline in output experienced by developing countries, loss of trade opportunities and emigration.
Remittances can boost a country’s Gross National Product and can assist by reducing the shortage of foreign exchange, counterbalancing the balance of payments deficits. The positive outcomes of remittances on production, inflation and imports will depend on how they are spent and invested.
Migrant remittances are a very stable financial source for developing countries and even though they might not be as important as foreign direct investments (FDIs), they do however, surpass the amount of FDIs received, development assistance, and capital market flows.
And remittances are beginning in countries like India, China, Jamaica, etc., to be perceived as a long-term development tool; and some of the more relatively recent recipients of remittances, like Guyana, St. Vincent and the Grenadines, are restructuring aspects of their financial system to make remittances more attractive to donors in the Diaspora; and this would include creating banking incentives that would be mutually attractive to both donors and recipients.
Remittances to developing countries have reduced inequality and poverty and have increased growth and development. They also help to reduce poverty, level consumption, create jobs, provide working capital, etc., and afford people living in developing countries to invest in human capital, such as, education, health and better nutrition. Remittances are fast becoming a tool for long-term development.
Elizabeth Daly
Friday, July 10, 2009
Character assassination and President Jagdeo’s antics
Kaieteur News letter. Character assassination and President Jagdeo’s antics
July 10, 2009 | By Ananthsa | Filed Under Letters
http://www.kaieteurnewsonline.com/2009/07/10/character-assassination-and-president-jagdeo%e2%80%99s-antics/
Dear Editor,
It is obvious that the message of the AFC, especially about the massive corruption of the Jagdeo Administration, is sinking in and biting our President deep. Instead of measuring up and dealing with these legitimate issues raised, President Jagdeo in keeping with his intractably undignified demeanour has seen fit to throw muck at our leaders and hope it will stick.
Obviously stung again by a potent paid advertisement during the recent CARICOM Heads meeting here in Guyana, the President lashed out insinuating that the AFC must answer to him concerning the characters who fund the AFC, and how we have not answered about a substantial donation from a drug dealer. We have answered already that we have no association with any drug dealer, nor got any donation - small or substantial - from any drug dealer. The funders are disgusted disgruntled Guyanese, many being former PPP supporters, inside and outside of this country. The entire country, Mr. President, knows which party and leaders deal with and have coffee with drug dealers.
An additional utterance of President Jagdeo insinuates financial wrong-doing and impropriety by me personally. This needs to be responded to. It concerns some duty free concession which he says I sold to my benefit. The innuendo here is that I am dishonest.
I am certain that if indeed there was one iota of illegality or impropriety concerning my several duty free concessions, you Mr. President would have already gotten the enforcement authorities to pounce on me. So, undoubtedly, your effort here is simply to character assassinate. My reputation, which even you use to commend prior to my expulsion from that Party you have now wholly captured, rests on surer foundations.
So what are the relevant facts? When I became a Parliamentarian in 1992 I applied for and obtained concession for a motor vehicle with which I purchased a Nissan Sentra PEE 583. Such a concession is an entitlement which comes every three years for reconditioned vehicles and five years for new vehicles. Five years later I purchased duty-free Mitsibishi Pajero PGG 590 upon another concession obtained in November, 1997.
These are the two vehicles which I sold lawfully and properly after having them for five years and more.
You Mr. President had a hand in persuading me to sell the first of these two vehicles to now Region 6 Chairman, Mr. Z. Mustapha. Remember we were all friends then in September, 2002, when at Freedom House you argued that Zulfi did great work in Berbice and Comrades who are Parliamentarians and who are selling their vehicles should sell at reasonable prices to other Comrades. Remember? I hope you don’t suffer from amnesia. But then again a President who micro-manages like you will have things so cluttered up, you may not remember. And there was everything proper and lawful about this sale to Zulfi for $550,000. I had the car for nine years when I sold it receiving payment by cheque No.100/NBAA 450024250.
The other vehicle, PGG 590, was purchased duty-free in November 1997. My driver during 2000 to 2005, Noel Martindale, can verify my use and possession of this vehicle right up to its sale in August, 2003. He is presently a member of Section K Campbellville PPP Group and was an Executive member of the Georgetown District PPP. I sold this vehicle to P&P Insurers Brokers for $5 million on 14th August, 2003 some six years after its purchase. Payment was made by cheque 100/NBAA160988797. You can get verification of this from the purchaser.
Registration remains in my name because I have had major difficulties to get the Ministerial permission for the dark tint this vehicle was bought with. This permission is needed before you can transfer registration. There was no prohibition about tint when I had bought same in 1997. This prohibition came sometime in late 2002 - early 2003. And my public criticisms of Gajraj around this time ensured that he never gave me this permission. This has remained the position up till now. This has not, however, been a bother with P&P Insurers Brokers, the owner since August 2003.
So all this talk, Mr. President, about me selling a duty-free concession for my benefit is untrue and motivated to tarnish my good name.
What is most disgraceful is that I am now reliably informed, which effectively vindicates my initial guess, that you ordered my Integrity Commission Declaration Forms to peruse these transactions which I declared therein. You then abused the information to assert that I am dishonest.
But it is Your Excellency who is dishonest; with a dishonesty which is unmatched. Remember how you gave your corporate friend, Queen’s Atlantic, duty-free concessions and tax holidays when it was illegal to do so.
You legalized it with a statutory amendment. Remember how you led us all into thinking that you were lawfully married to Varshnie. This was dishonesty to the hilt!
Remember how you told me in my face that I leak PPP information to the American Embassy and the Press, and hours after was denying ever saying so.
Thank God Moses Nagamootoo was there in that CC room to corroborate me.
Mr. President, your antics of shouting down others as dishonest will only damnify you, and assassinate whatever little character you have left.
Khemraj Ramjattan
July 10, 2009 | By Ananthsa | Filed Under Letters
http://www.kaieteurnewsonline.com/2009/07/10/character-assassination-and-president-jagdeo%e2%80%99s-antics/
Dear Editor,
It is obvious that the message of the AFC, especially about the massive corruption of the Jagdeo Administration, is sinking in and biting our President deep. Instead of measuring up and dealing with these legitimate issues raised, President Jagdeo in keeping with his intractably undignified demeanour has seen fit to throw muck at our leaders and hope it will stick.
Obviously stung again by a potent paid advertisement during the recent CARICOM Heads meeting here in Guyana, the President lashed out insinuating that the AFC must answer to him concerning the characters who fund the AFC, and how we have not answered about a substantial donation from a drug dealer. We have answered already that we have no association with any drug dealer, nor got any donation - small or substantial - from any drug dealer. The funders are disgusted disgruntled Guyanese, many being former PPP supporters, inside and outside of this country. The entire country, Mr. President, knows which party and leaders deal with and have coffee with drug dealers.
An additional utterance of President Jagdeo insinuates financial wrong-doing and impropriety by me personally. This needs to be responded to. It concerns some duty free concession which he says I sold to my benefit. The innuendo here is that I am dishonest.
I am certain that if indeed there was one iota of illegality or impropriety concerning my several duty free concessions, you Mr. President would have already gotten the enforcement authorities to pounce on me. So, undoubtedly, your effort here is simply to character assassinate. My reputation, which even you use to commend prior to my expulsion from that Party you have now wholly captured, rests on surer foundations.
So what are the relevant facts? When I became a Parliamentarian in 1992 I applied for and obtained concession for a motor vehicle with which I purchased a Nissan Sentra PEE 583. Such a concession is an entitlement which comes every three years for reconditioned vehicles and five years for new vehicles. Five years later I purchased duty-free Mitsibishi Pajero PGG 590 upon another concession obtained in November, 1997.
These are the two vehicles which I sold lawfully and properly after having them for five years and more.
You Mr. President had a hand in persuading me to sell the first of these two vehicles to now Region 6 Chairman, Mr. Z. Mustapha. Remember we were all friends then in September, 2002, when at Freedom House you argued that Zulfi did great work in Berbice and Comrades who are Parliamentarians and who are selling their vehicles should sell at reasonable prices to other Comrades. Remember? I hope you don’t suffer from amnesia. But then again a President who micro-manages like you will have things so cluttered up, you may not remember. And there was everything proper and lawful about this sale to Zulfi for $550,000. I had the car for nine years when I sold it receiving payment by cheque No.100/NBAA 450024250.
The other vehicle, PGG 590, was purchased duty-free in November 1997. My driver during 2000 to 2005, Noel Martindale, can verify my use and possession of this vehicle right up to its sale in August, 2003. He is presently a member of Section K Campbellville PPP Group and was an Executive member of the Georgetown District PPP. I sold this vehicle to P&P Insurers Brokers for $5 million on 14th August, 2003 some six years after its purchase. Payment was made by cheque 100/NBAA160988797. You can get verification of this from the purchaser.
Registration remains in my name because I have had major difficulties to get the Ministerial permission for the dark tint this vehicle was bought with. This permission is needed before you can transfer registration. There was no prohibition about tint when I had bought same in 1997. This prohibition came sometime in late 2002 - early 2003. And my public criticisms of Gajraj around this time ensured that he never gave me this permission. This has remained the position up till now. This has not, however, been a bother with P&P Insurers Brokers, the owner since August 2003.
So all this talk, Mr. President, about me selling a duty-free concession for my benefit is untrue and motivated to tarnish my good name.
What is most disgraceful is that I am now reliably informed, which effectively vindicates my initial guess, that you ordered my Integrity Commission Declaration Forms to peruse these transactions which I declared therein. You then abused the information to assert that I am dishonest.
But it is Your Excellency who is dishonest; with a dishonesty which is unmatched. Remember how you gave your corporate friend, Queen’s Atlantic, duty-free concessions and tax holidays when it was illegal to do so.
You legalized it with a statutory amendment. Remember how you led us all into thinking that you were lawfully married to Varshnie. This was dishonesty to the hilt!
Remember how you told me in my face that I leak PPP information to the American Embassy and the Press, and hours after was denying ever saying so.
Thank God Moses Nagamootoo was there in that CC room to corroborate me.
Mr. President, your antics of shouting down others as dishonest will only damnify you, and assassinate whatever little character you have left.
Khemraj Ramjattan
Thursday, July 9, 2009
Development Watch by Tarron Khemraj. Are remittances pivotal to Guyana’s development?
Stabroek News Features - Development Watch by Tarron Khemraj. Are remittances pivotal to Guyana’s development? July 8, 2009. URL to article: http://www.stabroeknews.com/2009/features/07/08/are-remittances-pivotal-to-guyana%e2%80%99s-development/
Several commentators have recently expressed the view that remittances are important for Guyana’s economic development. Indeed, one pro-government commentator noted remittances are “pivotal to development” (Misir 2009). Of course, the latter view is not altogether unfounded as there are several cross-country regression studies and reports from international organizations that tend to support that view. However, I am not convinced by these cross-country studies and will explain why it is misleading to extrapolate the conclusions of these studies to the Guyana context. I frame my arguments by taking into consideration the underlying structural characteristics of the Guyana economy. These structures mitigate the long-term positive effects remittances could have in our context. The key argument of this column is remittances are not pivotal to Guyana’s development but rather are engendered by our perpetual underdevelopment.
Confusing the long-term with the short-term
One of the misconceptions emanating from pro-government letter writers is they constantly fail to grasp the difference between long-term growth strategies and short-term stabilisation policies or mechanisms. As a result, remittances – which certainly have a favourable short-term effect by stabilising the local foreign exchange market – are seen as a positive for creating long-term growth and development. I would outline below how one can make erroneous conclusions when only focusing on the short-term.
Human capital and development
Guyana is considered to be one of the highest exporters in percentage terms of its skilled workforce. This outward migration depreciates the human capital base of the country. It is now a truism in economics that human capital is critical for the growth of the aggregate productivity of a nation. It is this growth in aggregate productivity that causes per capita GDP (real GDP divided by population) to grow over time. Moreover, it is the growth of aggregate productivity that enables a country to circumvent the diminishing production returns from sectors that have passed their productive prime decades ago. Some examples of sectors susceptible to diminishing production returns (per unit of labour and capital employed) in the Guyana context would be sugar, timber, rice and minimally processed bauxite – the core of the economy.
Human capital is also important for building suitable institutions that are critical for long-term growth (in economics institutions are things that reduce transaction costs and minimise societal inefficiencies; for instance, institutions can be laws, rules and the system of government). That institutions are critical for development is now conventional wisdom in economics. Talented home grown individuals, who understand the domestic circumstances (and not necessarily super-salaried foreign consultants), are required to run schools and hospitals, become university professors and researchers, supervise building infrastructures, conduct research relevant to the private sector, conduct analysis for government, run banks, etc.
Entrepreneurs are needed to build new productive sectors and take the economy away from the diminishing returns or low productivity sectors. These people are critical for changing the industrial landscape and breaking into new markets. Talents are required in private business to employ the researchers at the university level to seek solutions and new ways and techniques of production.
We can continue to enumerate the fundamental role human capital plays. But the key point is remittances are not enough to compensate for the immediate loss of human capital. The critical point, moreover, is if Guyana’s productivity continues to stagnate (as several studies have shown), then the perpetual status of underdevelopment will continue. Thus, while remittances may ease short-term foreign exchange constraints, the country is hurt at greater levels in the long-term by the dearth of entrepreneurs, innovators, researchers and administrators. In other words, the talents are not there to even optimally utilise the remittances.
Structure of production and multiplier effect
Professor Clive Thomas has long ago noted that Guyana imports a significant percentage of what it consumes, although this percentage has fallen over time. For instance, if we consult the Bank of Guyana statistics we will see the percentage of end-use consumer goods imports relative to the private consumption component of GDP to be 40% as at 2008. One has to be careful here, however, as imports cannot be part of Guyana’s GDP. But the point is the country continues to import a significant percentage of consumer goods that could probably be produced at home. The same conclusion can be made with respect to the imports of fuel and lubricants, which amount to 22.8% of GDP at end 2008. On the other hand, capital goods imports – things that go into the production process and stuff which the country cannot stop importing – amounts to 14.3% of GDP.
The reasons for citing these percentages are two-fold. First, a significant multiplier effect from remittances does not accumulate in the domestic economy but rather leaks out as imports of consumer goods and fuel. Therefore, remittances assuage short-term foreign exchange bottlenecks and furthermore furnish a false sense of success. Second, if government really has a long-term industrial strategy the country could save significantly from importing food and fuels that can be made at home. As it relates to fuel, I would argue for a renewable energy industrial policy framework utilising wind energy, ethanol and bagasse (the latter has already been in use in Skeldon but there is potential to generate many more MWs as Mauritius has shown) in the interim before hydro-electricity can come on stream. But then again the country would need the human capital and private entrepreneurs to pull this off as Mauritius has done.
Savings or investment constraint?
Several economists at the international stage have argued that remittances can increase domestic savings and promote financial deepening and intermediation in developing countries. However, I am quite sceptical of this view in the Guyana context. Indeed, I have noted in the past that remittances can contribute to the increase of bank deposits, excess bank reserves and domestic savings. But the latter does not imply the savings are channelled to investment projects with high rates of return. The main reason why an increase in domestic financial savings really does not matter has to do with the fact that business demand for investment rather than savings is likely to be the binding constraint (Rodrik and Subramanian 2009). Because investment demand is constrained, higher savings are just not intermediated or channelled into high productivity investments. As a result, we tend to see the society’s savings being channelled into foreign assets, excess liquidity and low productivity but safe traditional production sectors (Khemraj 2008).
Investment demand can be constrained for several reasons. First, poor institutions – which the economics literature has indicated as poor specification of property rights protection, weak contract enforcement, and fear of expropriation of profits by the State or some other entity or individual – retard investment demand (Acemoglu et al 2001; Rodrik et al 2004). In the case of Guyana, however, the notion of institution has to be widened to include a Constitution that is not suited to the bi-communal ethnic nature of the population. In addition, our current titivated 1980 Burnham Constitution has made it possible for the ruling party’s democratic centralism to create a paramount ruling structure over the private sector. In other words, while the PNC once used the army and paramilitary to enforce its party paramountcy; the current PPP government uses the supposed legitimacy of the conflict-generating Burnham Constitution to sustain its paramountcy (of course there are now other clandestine operations that became clear after the Roger Khan trials). Second, investment demand is constrained by the scarcity of entrepreneurs and limited human capital base that we have noted above is weakened by outward migration.
Third, investment demand is constrained by high lending rates and interest rate mark-ups over the cost of fund. This stems from the oligopolistic nature of banking in small economies like Guyana. One of my studies has also indicated a stable relationship between the investment in foreign assets by financial institutions and the existence of surpluses and shortages of hard currencies in the domestic foreign exchange market (Khemraj 2009). Therefore, to the extent remittances are channelled into foreign assets by financial institutions, the much touted multiplier effect of remittances is diminished.
Fourth, investment demand is constrained by the appreciation of the real exchange rate (Rodrik and Subramanian 2009) owing to the inflows of capital whether from short-term hot money inflows or more stable and altruistic remittance inflows. As an aside, one study has shown that Guyana’s remittance inflows are derived from altruistic motives (Agarwal and Horowitz 2002). When the real exchange rate appreciates, it impedes the competitiveness of the export sector – particularly new sectors not dependent on preferential prices. However, published data on Guyana’s real effective exchange rate indicate this latter constraint might not be as serious in the Guyanese context.
Remittances cannot replace FDIs
Several pro-government letter writers have implied that because remittances have surpassed FDIs it should be seen as a critical source of development funds. But we need to get
perspectives straight. Although remittances aggregate to be larger than FDIs, they enter the economy in small units that go directly to families and individuals to prop up private consumption. We have already noted several reasons why the production multiplier effect of remittances is dampened. In other words, these micro quantities are never aggregated into a large high productivity investment project.
On the other hand, FDIs are lumpy and go directly to the production enterprise for which they are intended. FDIs engender direct job creation from which taxes are raised by the State. Remittances are not taxed directly and some economists have actually noted that these inflows could lead to an incentive to reduce work effort by people (in other words some people might prefer to wait on the next handout from abroad rather than seek work). FDIs can have a direct and profound positive effect on development if the government has a clearly defined industrial policy framework (see Lall 2004 for experiences around the world with integrating FDIs with an industrial policy framework). If the government really knows what it wants, FDIs could lead to technology transfers, bring in new management skills, and provide a direct boost for a renewable energy industrial strategy. The latter cannot be gained by the multiple small inflows of remittances as there is no existing mechanism that serves to pool together remittance inflows for large scale development projects.
Political economy issues
The local elites and friends of the ruling semi-oligarchy certainly would find remittances to be beneficial. Perhaps this explains why they have tended to conflate the long-term with the short-term when it comes to the true benefits. Remittances provide a stable source of foreign exchange, which enable those who are elected in an ethnically bi-communal society to be able to further divorce themselves from the public facilities. They are able to obtain immediate foreign exchange to send children to foreign universities; they can seek medical help from abroad; they can remit funds abroad; and overall divorce themselves from the local reality. Overall, remittances, provide a false sense of success given the stable and altruistic nature of the flows; and importantly these inflows could very well postpone the need for serious political reforms.
A better role for the Diaspora
Instead of viewing the Diaspora’s role as one of financing private consumption through remittances (and of course contributions at election time), it would be better for the government to come up with a comprehensive plan to engage the Diaspora. This can include knowledge transfer (brain gain or brain circulation), inward Diaspora investments and even special Diaspora financial products.
Conclusion
The remittance phenomenon is a reflection of Guyana’s perpetual underdevelopment rather than a cause of development. The poverty that remittances might reduce in the short-term is caused by Guyana’s production of things that are not important in the global continuum of products. As we have noted above, remittances cannot correct and transform this production structure without a clear and realistic development strategy by the government. Therefore, any short-term reduction in poverty via the subsidy on private consumption – without production transformation – is false success. Also, many government representatives see remittances as beneficial because they confuse short-term stabilisation with long-term production oriented policies.
References
Acemoglu, Daron; Simon Johnson and James A. Robinson. 2001. The colonial origins of comparative development: an empirical investigation. The American Economic Review 91 (5): 1369-1401.
Agarwal, Reena and Andrew Horowitz. 2002. Are international remittances altruism or insurance? Evidence from Guyana using multiple-migrant households. World Development 30 (11): 2033-2044.
Khemraj, Tarron. 2009. Excess liquidity and the foreign currency constraint: the case of monetary management in Guyana. Applied Economics 41 (16): 2073 – 2084.
Khemraj, Tarron. 2008. The missing link: the finance growth nexus and the Guyanese growth stagnation. Social and Economic Studies 57 (3&4): 105-129.
Lall, Sanjaya. 2004. Selective industrial and trade policies in developing countries: theoretical and empirical issues. In: S. Soludo; O. Ogbu and H. Chang (editors), The Politics of Trade and Industrial Policy in Africa: Forced Consensus? Trenton NJ: Africa World Press.
Misir, Prem. 2009. Remittances are pivotal to development. Kaieteur News, June 25, Letter Column.
Rodrik, Dani and Arvind Subramanian. 2009. Why did financial globalization disappoint? IMF Staff Papers 56 (2): 112-138.
Rodrik, Dani; Arvind Subramanian and Francesco Trebbi. 2004. Institutions rule: the primacy of institutions over geography and integration in economic development. Journal of Economic Growth 9: 131-165.
1 Comment (Open | Close)
1 Comment To "Are remittances pivotal to Guyana’s development?"
#1 Comment By bakr On July 8, 2009 @ 6:05 am
Interesting. One concludes from observation of the Dominican Republic, Morocco, Senegal, Congo, that beyond these effects Khemraj described here,remittances serve to re-orient economic and social activity towards emigration and expatriation of
-human capital
-investments which follow the human capital. And these are investments that locals would have made at home. In short you buy a business or house in Miami because the mentality is foreign-oriented.
But a lot depends on the country and the history of emigration. The Moroccans and Algerians and Turks in Europe may be different from Guyanese and Dominicans. This piece requires wide discussion and comment.
Article printed from Stabroek News: http://www.stabroeknews.com
Several commentators have recently expressed the view that remittances are important for Guyana’s economic development. Indeed, one pro-government commentator noted remittances are “pivotal to development” (Misir 2009). Of course, the latter view is not altogether unfounded as there are several cross-country regression studies and reports from international organizations that tend to support that view. However, I am not convinced by these cross-country studies and will explain why it is misleading to extrapolate the conclusions of these studies to the Guyana context. I frame my arguments by taking into consideration the underlying structural characteristics of the Guyana economy. These structures mitigate the long-term positive effects remittances could have in our context. The key argument of this column is remittances are not pivotal to Guyana’s development but rather are engendered by our perpetual underdevelopment.
Confusing the long-term with the short-term
One of the misconceptions emanating from pro-government letter writers is they constantly fail to grasp the difference between long-term growth strategies and short-term stabilisation policies or mechanisms. As a result, remittances – which certainly have a favourable short-term effect by stabilising the local foreign exchange market – are seen as a positive for creating long-term growth and development. I would outline below how one can make erroneous conclusions when only focusing on the short-term.
Human capital and development
Guyana is considered to be one of the highest exporters in percentage terms of its skilled workforce. This outward migration depreciates the human capital base of the country. It is now a truism in economics that human capital is critical for the growth of the aggregate productivity of a nation. It is this growth in aggregate productivity that causes per capita GDP (real GDP divided by population) to grow over time. Moreover, it is the growth of aggregate productivity that enables a country to circumvent the diminishing production returns from sectors that have passed their productive prime decades ago. Some examples of sectors susceptible to diminishing production returns (per unit of labour and capital employed) in the Guyana context would be sugar, timber, rice and minimally processed bauxite – the core of the economy.
Human capital is also important for building suitable institutions that are critical for long-term growth (in economics institutions are things that reduce transaction costs and minimise societal inefficiencies; for instance, institutions can be laws, rules and the system of government). That institutions are critical for development is now conventional wisdom in economics. Talented home grown individuals, who understand the domestic circumstances (and not necessarily super-salaried foreign consultants), are required to run schools and hospitals, become university professors and researchers, supervise building infrastructures, conduct research relevant to the private sector, conduct analysis for government, run banks, etc.
Entrepreneurs are needed to build new productive sectors and take the economy away from the diminishing returns or low productivity sectors. These people are critical for changing the industrial landscape and breaking into new markets. Talents are required in private business to employ the researchers at the university level to seek solutions and new ways and techniques of production.
We can continue to enumerate the fundamental role human capital plays. But the key point is remittances are not enough to compensate for the immediate loss of human capital. The critical point, moreover, is if Guyana’s productivity continues to stagnate (as several studies have shown), then the perpetual status of underdevelopment will continue. Thus, while remittances may ease short-term foreign exchange constraints, the country is hurt at greater levels in the long-term by the dearth of entrepreneurs, innovators, researchers and administrators. In other words, the talents are not there to even optimally utilise the remittances.
Structure of production and multiplier effect
Professor Clive Thomas has long ago noted that Guyana imports a significant percentage of what it consumes, although this percentage has fallen over time. For instance, if we consult the Bank of Guyana statistics we will see the percentage of end-use consumer goods imports relative to the private consumption component of GDP to be 40% as at 2008. One has to be careful here, however, as imports cannot be part of Guyana’s GDP. But the point is the country continues to import a significant percentage of consumer goods that could probably be produced at home. The same conclusion can be made with respect to the imports of fuel and lubricants, which amount to 22.8% of GDP at end 2008. On the other hand, capital goods imports – things that go into the production process and stuff which the country cannot stop importing – amounts to 14.3% of GDP.
The reasons for citing these percentages are two-fold. First, a significant multiplier effect from remittances does not accumulate in the domestic economy but rather leaks out as imports of consumer goods and fuel. Therefore, remittances assuage short-term foreign exchange bottlenecks and furthermore furnish a false sense of success. Second, if government really has a long-term industrial strategy the country could save significantly from importing food and fuels that can be made at home. As it relates to fuel, I would argue for a renewable energy industrial policy framework utilising wind energy, ethanol and bagasse (the latter has already been in use in Skeldon but there is potential to generate many more MWs as Mauritius has shown) in the interim before hydro-electricity can come on stream. But then again the country would need the human capital and private entrepreneurs to pull this off as Mauritius has done.
Savings or investment constraint?
Several economists at the international stage have argued that remittances can increase domestic savings and promote financial deepening and intermediation in developing countries. However, I am quite sceptical of this view in the Guyana context. Indeed, I have noted in the past that remittances can contribute to the increase of bank deposits, excess bank reserves and domestic savings. But the latter does not imply the savings are channelled to investment projects with high rates of return. The main reason why an increase in domestic financial savings really does not matter has to do with the fact that business demand for investment rather than savings is likely to be the binding constraint (Rodrik and Subramanian 2009). Because investment demand is constrained, higher savings are just not intermediated or channelled into high productivity investments. As a result, we tend to see the society’s savings being channelled into foreign assets, excess liquidity and low productivity but safe traditional production sectors (Khemraj 2008).
Investment demand can be constrained for several reasons. First, poor institutions – which the economics literature has indicated as poor specification of property rights protection, weak contract enforcement, and fear of expropriation of profits by the State or some other entity or individual – retard investment demand (Acemoglu et al 2001; Rodrik et al 2004). In the case of Guyana, however, the notion of institution has to be widened to include a Constitution that is not suited to the bi-communal ethnic nature of the population. In addition, our current titivated 1980 Burnham Constitution has made it possible for the ruling party’s democratic centralism to create a paramount ruling structure over the private sector. In other words, while the PNC once used the army and paramilitary to enforce its party paramountcy; the current PPP government uses the supposed legitimacy of the conflict-generating Burnham Constitution to sustain its paramountcy (of course there are now other clandestine operations that became clear after the Roger Khan trials). Second, investment demand is constrained by the scarcity of entrepreneurs and limited human capital base that we have noted above is weakened by outward migration.
Third, investment demand is constrained by high lending rates and interest rate mark-ups over the cost of fund. This stems from the oligopolistic nature of banking in small economies like Guyana. One of my studies has also indicated a stable relationship between the investment in foreign assets by financial institutions and the existence of surpluses and shortages of hard currencies in the domestic foreign exchange market (Khemraj 2009). Therefore, to the extent remittances are channelled into foreign assets by financial institutions, the much touted multiplier effect of remittances is diminished.
Fourth, investment demand is constrained by the appreciation of the real exchange rate (Rodrik and Subramanian 2009) owing to the inflows of capital whether from short-term hot money inflows or more stable and altruistic remittance inflows. As an aside, one study has shown that Guyana’s remittance inflows are derived from altruistic motives (Agarwal and Horowitz 2002). When the real exchange rate appreciates, it impedes the competitiveness of the export sector – particularly new sectors not dependent on preferential prices. However, published data on Guyana’s real effective exchange rate indicate this latter constraint might not be as serious in the Guyanese context.
Remittances cannot replace FDIs
Several pro-government letter writers have implied that because remittances have surpassed FDIs it should be seen as a critical source of development funds. But we need to get
perspectives straight. Although remittances aggregate to be larger than FDIs, they enter the economy in small units that go directly to families and individuals to prop up private consumption. We have already noted several reasons why the production multiplier effect of remittances is dampened. In other words, these micro quantities are never aggregated into a large high productivity investment project.
On the other hand, FDIs are lumpy and go directly to the production enterprise for which they are intended. FDIs engender direct job creation from which taxes are raised by the State. Remittances are not taxed directly and some economists have actually noted that these inflows could lead to an incentive to reduce work effort by people (in other words some people might prefer to wait on the next handout from abroad rather than seek work). FDIs can have a direct and profound positive effect on development if the government has a clearly defined industrial policy framework (see Lall 2004 for experiences around the world with integrating FDIs with an industrial policy framework). If the government really knows what it wants, FDIs could lead to technology transfers, bring in new management skills, and provide a direct boost for a renewable energy industrial strategy. The latter cannot be gained by the multiple small inflows of remittances as there is no existing mechanism that serves to pool together remittance inflows for large scale development projects.
Political economy issues
The local elites and friends of the ruling semi-oligarchy certainly would find remittances to be beneficial. Perhaps this explains why they have tended to conflate the long-term with the short-term when it comes to the true benefits. Remittances provide a stable source of foreign exchange, which enable those who are elected in an ethnically bi-communal society to be able to further divorce themselves from the public facilities. They are able to obtain immediate foreign exchange to send children to foreign universities; they can seek medical help from abroad; they can remit funds abroad; and overall divorce themselves from the local reality. Overall, remittances, provide a false sense of success given the stable and altruistic nature of the flows; and importantly these inflows could very well postpone the need for serious political reforms.
A better role for the Diaspora
Instead of viewing the Diaspora’s role as one of financing private consumption through remittances (and of course contributions at election time), it would be better for the government to come up with a comprehensive plan to engage the Diaspora. This can include knowledge transfer (brain gain or brain circulation), inward Diaspora investments and even special Diaspora financial products.
Conclusion
The remittance phenomenon is a reflection of Guyana’s perpetual underdevelopment rather than a cause of development. The poverty that remittances might reduce in the short-term is caused by Guyana’s production of things that are not important in the global continuum of products. As we have noted above, remittances cannot correct and transform this production structure without a clear and realistic development strategy by the government. Therefore, any short-term reduction in poverty via the subsidy on private consumption – without production transformation – is false success. Also, many government representatives see remittances as beneficial because they confuse short-term stabilisation with long-term production oriented policies.
References
Acemoglu, Daron; Simon Johnson and James A. Robinson. 2001. The colonial origins of comparative development: an empirical investigation. The American Economic Review 91 (5): 1369-1401.
Agarwal, Reena and Andrew Horowitz. 2002. Are international remittances altruism or insurance? Evidence from Guyana using multiple-migrant households. World Development 30 (11): 2033-2044.
Khemraj, Tarron. 2009. Excess liquidity and the foreign currency constraint: the case of monetary management in Guyana. Applied Economics 41 (16): 2073 – 2084.
Khemraj, Tarron. 2008. The missing link: the finance growth nexus and the Guyanese growth stagnation. Social and Economic Studies 57 (3&4): 105-129.
Lall, Sanjaya. 2004. Selective industrial and trade policies in developing countries: theoretical and empirical issues. In: S. Soludo; O. Ogbu and H. Chang (editors), The Politics of Trade and Industrial Policy in Africa: Forced Consensus? Trenton NJ: Africa World Press.
Misir, Prem. 2009. Remittances are pivotal to development. Kaieteur News, June 25, Letter Column.
Rodrik, Dani and Arvind Subramanian. 2009. Why did financial globalization disappoint? IMF Staff Papers 56 (2): 112-138.
Rodrik, Dani; Arvind Subramanian and Francesco Trebbi. 2004. Institutions rule: the primacy of institutions over geography and integration in economic development. Journal of Economic Growth 9: 131-165.
1 Comment (Open | Close)
1 Comment To "Are remittances pivotal to Guyana’s development?"
#1 Comment By bakr On July 8, 2009 @ 6:05 am
Interesting. One concludes from observation of the Dominican Republic, Morocco, Senegal, Congo, that beyond these effects Khemraj described here,remittances serve to re-orient economic and social activity towards emigration and expatriation of
-human capital
-investments which follow the human capital. And these are investments that locals would have made at home. In short you buy a business or house in Miami because the mentality is foreign-oriented.
But a lot depends on the country and the history of emigration. The Moroccans and Algerians and Turks in Europe may be different from Guyanese and Dominicans. This piece requires wide discussion and comment.
Article printed from Stabroek News: http://www.stabroeknews.com
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