Funding conditionalities too harsh -- Jagdeo says at debt strategy workshop By Gitanjali Singh Stabroek News September 7, 1999 President Bharrat Jagdeo yesterday came out against the International Monetary Fund (IMF)/World Bank conditionalities which lock Guyana into inflexible situations; and fleeting visits by their officials which do not allow for full understanding of the local situation in structural adjustment programmes. The President's statements, tantamount to accusing the agencies of hampering speedy progress, were made at the opening of a capacity building workshop to deal with a debt strategy for Guyana, (post- Heavily Indebted Poor Countries Initiative [HIPC]), at the Ocean View Convention Centre. Jagdeo, who still holds the minister of finance portfolio and who has negotiated funding programmes and debt relief packages for Guyana, cited as examples the blockade on Guyana contracting commercial debts, conditionalities accompanying the spending of resources freed by the HIPC initiative in the social sector and spending targets which may not yield value for money. Speaking to an audience including representatives of the IMF and World Bank and the diplomatic and donor community, Jagdeo said the social sector programme conditions the government committed itself to left little room for flexibility in movement across categories. "We hope that this doesn't become a recurring feature of the enhanced HIPC framework [the Cologne Initiative] and that this would not happen again. There [sh]ould just be a commitment to use the resources in the social sectors and [the multilateral agencies should] give government the flexibility to manage those resources rather than it being micro-managed by millions of micro conditions," Jagdeo asserted. Disregarding his prepared three-page text to speak his "mind" Jagdeo said he knew the importance of a debt strategy for Guyana but argued that this was just one component of an overall policy to take the country forward. "Sometimes we [developing countries] have a debt strategy supported internationally by various countries and multilateral institutions which would push the country forward by freeing up more resources for developmental tasks. But simultaneously, we have other policies that are just as important to develop, being implemented by institutions and governments that could have the reverse effect," Jagdeo stated. As such, he urged that multilateral agencies have little input in guiding countries' poverty reduction programmes or debt reduction programmes as set out in the terms of the Cologne Initiative, an improved version of the HIPC initiative. He said he felt that such strategies had to be indigenously developed if they were going to be workable and to achieve their objectives with the minimal presence of many of the multilateral agencies. He added that the fleeting presence of their officials did not allow for local issues to be "adequately captured", noting that this took place to some extent in the negotiations for the HIPC relief. The President also raised the issue of meeting artificial spending targets. "I have seen cases where resources are utilised because they simply have to meet some spending target that shouldn't be and I wouldn't support any such initiative to waste resources simply because we want to meet an artificial spending target. We would like to spend more in the social sectors but we must get value for money too," Jagdeo stated. He said that in his experience as minister of finance, when November and December approached and resources were unspent, spending ideas were broached which might not be the most productive outlet. "I have always resisted that as minister of finance and as President of Guyana I would continue to do that," said the President, urging the workshop to look at qualitative ways of spending resources so that value could be had. He said the time might be right to consider whether it would not be wise to spend these resources in areas which support social sector activities, but he was not certain how far this will go with the multilateral agencies. Stating that the presence of the media had constrained his presentation, Jagdeo argued in favour of a debt strategy with consistent objectives. The President also commended British High Commissioner to Guyana, Edward Glover, for his stated position at the workshop that borrowing policies of developing countries needed to be consistent with long-term growth objectives. And he pointed out that Guyana's technical memorandum with the IMF limited it to only contracting concessional debts. "I don't think this has been done with a look at what is necessary for the growth in the economy. It was just to restrain borrowing," the President argued. He said the position many third world countries faced was that they were told to diversify and restructure their economy but did not have the institutions to do so and were unable to cope with the rapid changes in the external environment. As such, Jagdeo said, a debt strategy for Guyana could not be formulated in isolation of the external environment with the accompanying implications for trade and investment in the medium term. He also asked that the higher demand for counterpart resources by multilateral institutions be taken into account as this had to come from budgetary resources. He noted that in the past, the Inter-American Development Bank had required ten percent counterpart financing but this had now doubled. And touching on Guyana's experience with debt relief, which began with a stock of debt write-off in 1996 by the Paris Club creditors and Trinidad and Tobago to be followed by the HIPC initiative in 1998, Jagdeo underscored that debt servicing will still cause Guyana more than 50% of its revenue. There is a deferral of one payment this year which means actual payment will amount to 38% of revenue. "That's just too much. It is too much of a burden on a small country like ours," said Jagdeo. He said he was bothered that Guyana's debt remained unsustainable by the multilateral institutions debt to revenue ratio criteria, despite application of the HIPC terms. The IMF/World Bank ratio is fixed at 280% and the recently approved Cologne Initiative recommends that this come down to 250%. But Guyana's ratio after HIPC relief stands at 400%. "Clearly by their own definition we are not at a sustainable level so what do we do about this? The excuse cannot be used that we are not making the revenue effort because Guyana tax to GDP ratio is 30%. The average for countries like ours is 14%," Jagdeo said, pointing out that Guyana has the highest tax to GDP ratio in Latin America and the rest of the Caribbean. The Cologne Initiative has asked that tax to GDP ratio be lowered from the current 20% to 15%. The other sub-criterion for HIPC relief for Guyana was openness of the economy and whilst the institutions set a target of 40% (export to GDP), Guyana's ratio is almost at 100%. "We have a very very open economy and by all criteria we should have gotten to 280% of debt to revenue ratio," Jagdeo said. He told this newspaper afterwards that it could have meant in excess of a further US$100 million in debt relief. He called on the workshop to examine how Guyana could be taken to the sustainable debt level and noted the painful process Guyana went through in the run up to HIPC relief. The President used the forum to thank all the donors and institutions who have contributed to Guyana's debt reduction initiative. The ten-day capacity building workshop is co-ordinated by Debt Relief International, a London-based non governmental organisation with funding provided by the governments of Austria, Denmark, Sweden, Switzerland and the United Kingdom. A © page from: Guyana: Land of Six Peoples