The Cost of Living
Are you better off than you were eight years ago?
There is without doubt a wide perception in Guyana that hard times have come again after the boom years of the mid nineties. The growth rate in GDP last year was only 1.9% and in 2000 a negative 1.4%. But looking at the numbers reveals that while the cost of living has increased by some 60% in eight years most salaries have more than kept pace.

The Bureau of Statistics is responsible for the collection of information on prices for a basket of goods which measures the Consumer Price Index. There have been some questions over how reflective of consumption patterns the basket is , but the bureau notes that it was based on a survey taken in 1992-3 of 7280 households from all regions of the country and various income levels. This is important because in rural areas items such as consumer goods may be more expensive than in Georgetown due to distribution costs whereas fruits and vegetables are generally cheaper. The survey looked to establish how much consumers spent on various categories of goods and services. These would include such mundane but often used items such as matches and salt, staples including rice and chicken, three different kinds of steak, and clothing, furniture and durable goods. Entertainment expenses included cinema tickets, T.V licences and books.
In the services category electricity bills, education, transportation, house rent or mortgage funeral services were all included. All income levels were reflected as shown by services for washer woman, house servant and watchman . In total 1250 items were identified and this was eventually whittled down to 238, of which about 55 items make up 60% of the basket. These were now given various weights according to the results of the survey. So chicken was seen as constituting 3% of a household's expenditure and was given a 3% value in the basket . These items were then grouped into nine broad categories and given weights representing their portion of household expenditure : food 44%: ,clothing; 3.7%; footwear and repairs 1.9%; housing 22.7%; furniture 5.9%; transport and communication 10.8%; medical and personal care 2.3%; education, recreation and cultural services 3.5%; and miscellaneous goods and services 4.8% .
The Bureau monitors food prices weekly by surveying supermarkets and municipal markets in Georgetown as well as out of town. Gasoline is also monitored weekly and durable goods such as fridges on a monthly basis. The price collectors monitor the items such as a brand-named powdered milk at more than one location and should the item be discontinued a similar product is substituted which has been tracked previously.
How have prices increased over the last eight years?
Within the categories food has increased from a starting point of 100 in 1994 to 167.6 in 2001. Clothing has actually decreased during the time period which might reflect increased competition in the market place as more and more vendors get into selling clothes. Footwear has also declined. But housing has almost doubled (182.2.) and transportation has increased sharply to 186.8 along with medical care (186.4) and education recreation and cultural services (177.5.
Overall prices have increased by 65.4% in eight years. However in 2000 prices only increased by 1.6% and in 2001 by 2.6% with the cost of food actually declining by 2.1%.
But spending patterns are likely to have changed during this time period even with relatively low inflation . There are many more cars now (12,134 more up to 2000) thus incurring their new owners more expense in maintenance and possible financing. Electricity costs which were much smaller in 1994 or non existent for non -connected families have increased. The bureau acknowledges these increases and it may be that in a few more years a new index reflecting these new patterns will have to be composed. Persons demonstrating against the large charges from GPL have indicated that their bills make up 40% of their expenditure whereas the index only has electricity as under 5% of costs. It is also not an avoidable cost as might be the case for chicken or fruits where consumers can switch to alternatives when prices increase. Also many more persons have moved into their own housing, with the costs associated with running a home and perhaps paying a mortgage.
How have wages fared over the same period is of course the next question. Wages in the private sector are not monitored but low level positions do tend to follow the minimum wage as set by the public sector. This has increased significantly over the last eight years thanks to two hard fought raises in 1998 and 1999. Large wage increases have also been awarded for teachers and the police force. And if we take wages in the sugar industry with some 18,000 employees we may get a picture of the levels of salaries for employed persons. The minimum monthly salary in the public sector has gone from $5500 in 1994 to $20,045 in 2001. In the sugar industry the daily minimum earning wage for lowest paid field workers has increased from $1181 in 1994 to $2115 in 2001 (79%).
So on the face of it the standard of living has improved for a majority of workers.

And this is an important point, in that a large section of the population are actually self employed and this is where the perception that times are hard could be coming from. There is a lot more competition for consumer dollars than there was eight years ago, while with emigration and a slow economy demand has been stagnant. The number of vendors has increased enormously both in Georgetown and in rural areas. Cash crop farmers are producing more. Inevitably with increased supplies prices have remained largely stable and these micro-entrepreneurs have seen profit margins shrink. For many of them their income may not have kept up with inflation. The smallest rice farmers are probably living below the minimum wage with prices so low.
So these figures will come as cold comfort for Guyana's working poor and the unemployed who still are unable to make ends meet. For many remittances from relatives abroad continue to make up the difference between income and expenditure.  



Profile
Dr Leslie Chin
A brilliant student in his youth, the new head of IPED has applied the logic of the sciences to the world of business.
Dr Leslie Chin was born in 1937 in Charlestown. His parents who are still alive today came from Canton province in China a few years earlier and the family is descended ten generations from three brothers who settled in Canton a couple of centuries ago. Leslie's grandfather had already settled in Guyana and was running a shop in La Penitence Market. He gave them a grocery to run on Drysdale street just off Lombard street which is still standing today. Leslie is the second in a family of seven sisters and four brothers. He attended the Broad Street Government School now the Dolphin and was a bright student regularly coming first or second in his class. However his father could not afford to send him to the extra classes needed so that he could apply for a scholarship to Queens College. Instead and quite of character for a Chinese family he sent Leslie's elder sister to the lessons. So Leslie went on to the Central High School and recalls that despite his ethnicity he never felt he was an outsider. He recalls that in those days there really was no differentiation between the races amongst children. He passed 9 subjects at the Junior Cambridge taking them one year early and went onto Queen's College to study the sciences with the intention of becoming a doctor.

He received a distinction in Chemistry along with his other three A level subjects physics, botany and zoology, before taking a job in the civil service in the Government Analyst Department. The salary at the time was quite handsome at $200 a month and being a studious lad he would give $190 to his father and only keep a $10 for himself. On the job he was insatiably curious and would often take apart equipment on the weekends to clean and adjust them. It is a philosophy he still has to this day of using what is there before going and buying something new . The chief analyst seeing how bright Leslie was suggested he apply for a scholarship to study abroad and he was soon on his way to Aberdeen University to study biochemistry . He recalls that he had to join the immigrant boat in Jamaica and suffered terribly from sea sickness during the passage. Landing in Genoa, Italy he was sent off to London on a train which had all its doors locked.
The most he remembers about Aberdeen, a city on the east coast of Scotland, was that it was bitterly cold. He was not too interested in socialising and focused intently on his studies taking holiday breaks in London staying with friends and family. There was the usual culture shock but he was helped over this by the British Council which would hold a one week programme in British customs. It was there Leslie learnt to use a knife and fork after years of eating with chopsticks.
After four years he graduated with 1st class honours in biochemistry and top of his class. One teacher gave him a mark on a paper of 21 out of 20 owing to his diligent research . He was a perfectionist and says he managed to find the most obscure information including that most critical of questions as to why starch turns blue when mixed with iodine.
About a year before his graduation he had been contacted by the London School of Hygiene and Tropical Medicine and was eventually awarded a Rockefeller Grant to do post graduate work in human nutrition.
He finished his Phd at the University of London in only two years with a thesis on the " Metabolism and functions of the sulphur-amino acids in protein calorie malnutrition and then it was time to return home .Leslie recalls that it never occurred to him not to keep up his end of the agreement although offered a scholarship at Philadelphia University in the United States . He returned in January 1965 having missed the riots of the early sixties and went back to the Government Analyst Department. He specialised in nutrition including doing various studies on fruits and rice and toxicological analysis of murders suicides and stolen bicycles . But after a few years he became frustrated by the lack of equipment and during that time had become a member of the National Milk Committee. He was eventually asked to go run the Milk Pasteurisation plant in Kingston where he applied the common sense he had learnt working in his father's shop along with setting strict standards for milk . He realised that the reason it was not selling was because farmers were watering it down. They were so casual about it that sometimes the plant would find fish in the milk where the farmers had dipped water from the creek! So he applied a quality test and refused any supplies which did not pass. Very quickly farmers got the idea and supplies improved.
Then he repaired a number of trucks as part of increasing distribution, and sales jumped from 600 gallons per day to 1500. At the same time the plant improved the chocolate milk it sold and developed peanut punch. Within one month of taking over, the company had stopped losing money and eventually eliminated the practice of dumping 100,000 gallons of milk per year. It also went into production of gouda cheeses. At the same time he developed a range of pig feeds with 100% local inputs. But after three years Leslie began to get restless again. He says it is a trait he has that he can't stay in a job without new challenges and becomes easily bored. So he joined Booker- British Drugs House (BDH) as a management trainee a job which challenged his abilities in many areas including as an architect and accountant. Bookers was nationalised in 1976 and working along with the Ministry of Health Leslie helped devise a national drug policy focusing on generic drugs bought in bulk and increasing local manufacture.
The Guyana Pharmaceutical Corporation diversified into a number of areas during the late seventies and early eighties including the Quality Foods Division. Looking back he says there was little attention paid to the economic efficiencies of these various ventures. For example an orange juice processing plant could only take oranges of a particular size and other projects were constrained by the fundamental problems of limited supplies. Still the government also took over Correia's Canning Company making carambola candies and table sauce and another project resulted in a popular breakfast cereal called Family Delight . Using his background in nutrition Leslie formulated a cereal for infants called Cerex which even the GDF soldiers used as rations!
Other products included black sage toothpaste and coction wine and liqueur with six alleged aphrodisiac herbs whose potency Leslie suggests is more in the mind of the consumer.
His job was really to make sure these things were not harmful. While private companies were naturally floundering under nationalisation, the GPC was perceived as a great success. President Burnham also nationalised Berger Paints and Leslie in the spirit of the times looked to see how much local inputs could be produced discovering veins of red and yellow in bauxite for use as colour. The corporation also invested in an alkyd resin plant the most advanced technology in Guyana at the time, to make linseed oil although this was never fully operational. In 1978 the corporation bought the assets of OK soap plant and started production at Versailles of toilet soaps of course unwrapped to save on paper.
They were, he recalls, exciting times and to work at the GPC was considered a privilege. Leslie then became executive director of Guyana Stockfeeds with the intention of maximizing local inputs. He managed to get imported resources down to a half of the inputs as opposed to the existing two thirds. At the same time an edible oil plant was still in crates shipped from Cold War friend East Germany and Burnham made it clear he wanted it up and running in four months . Well it worked for the opening ceremony! Leslie eventually took charge of The National Edible Oil Company in 1985 encouraging farmers to increase production with offers of cutlasses and files despite price controls on copra. Throughout his career he has always tried to approach problems in a constructive way by asking what are the three possible solutions. Even if these cannot be found it puts him in a positive frame of mind.
At Neocol he moved the company from a position of providing 25% of demand, to self sufficiency and export potential. As part of the responsibilities he managed the Hope Estate and would spend long hours there and also at San Jan and Wauna palm oil estates which he helped to reach some level of productivity despite grave limits on investment. He recalled that in those days if a public corporation had any cash surplus at the end of the year it was sent to the treasury. So one year he bought 200 cows just to tie up the money!
In 1991 and looking for a new challenge, Leslie helped develop the programme for the CESO Business Advisory Service which brings senior retired executives from Canada to work with local companies. Once again he applied the disciplines of scientific research to the situation devising a complex business model which even measured the programme's impact on the country's GDP. The first three years were very challenging and in the fourth year he conceptualised a sustainable development mechanism.
He now serves on a number of boards including Sterling Products Ltd, Laparkan Holdings, Pomeroon Oil mill, Demerara Bank and Demerara Mutual Life Assurance Co.
Taking over as C.E.O at IPED will of course require the same commonsense approach to the micro loan sector and it is dear to his heart since he originally conceptualised and put in operation a micro enterprise loan scheme for IPED in 1993. As a Rotarian he had spent time in the community of Enterprise where the residents were asking for access to small loans. So he asked the board of IPED for $1m. IPED also fits in with his interest in projects that emphasize equitable development. He says he is confident he can double the business in two years.
His civic roles include being a trustee of the Chinese Association of Guyana, a member of the Electoral Assistance Bureau and a Trustee of the St Cuthbert's Village Council where he helped set up a cooperative shop some years ago. He is also a member of the Guyana Book Foundation. He is a charter member of the Rotary Club of George-town Central which became the sponsor club for the Rotary Club of Demerara. This was seen as a comfortable strategy for enrolling women in to the Rotary Organisation.
In 1989 he received a Golden Arrow of Achievement for contributions to the development of the edible oil sector.
Leslie has been married to his wife Eileen Chin since 1967. They have three boys and a daughter.


Reviews of High end and Budget Laptops
The biggest advantage of a laptop computer is that it is a completely self-contained computing unit when it needs to be - a single module that can be packed around easily and conveniently whether to the next room or across the continent. And it keeps on working during blackouts. Laptops are generally regarded as companion computers to desktops, but they are now so powerful that they really can be true desktop replacements .As with most other computer hardware, prices have continued to drop as manufacturers step up the competition for your dollar.
Below are reviews of various laptop models taken from the website Consumer Search.

IBM ThinkPad A30p (*est. $3000)
Experts say the 1.2GHz IBM ThinkPad A30p is a portable office in itself. With its 48GB hard drive, integrated 802.11B wireless networking (Wi-Fi), IBM's Embedded Security, and two drive bays (one can house a slide-out sync cradle for a PDA), the A30p is a flexible business tool; reviewers also like its unique tilting keyboard and proprietary ThinkLight for low-light-level typing. While the eight-pound ThinkPad can certainly play a DVD or two, its short battery life (a bit over two hours) may mean you'll miss the happy ending, making the Gateway, below, better suited for games and movies. The IBM can display more pixels (1600 x 1200) than the Gateway below, making it especially suitable for detailed work like spreadsheets.

Gateway 600xl (*est. $2500)
Reviewers such as PC World and Smart Computing say the Gateway 600xl is a multimedia powerhouse, with one of the largest displays in the industry (15.7-inches). The 64MB ATI Mobility Radeon 7500 graphics card "plays movies like a cineplex movie projector," according to ZDNet, which also says the 600xl bests every other Pentium 4-M notebook on test. Weighing nearly ten pounds, the 1.7GHz 600xl pushes the boundaries of "portable," but for graphics pros, gamers and digital-video mavens, the Gateway is the notebook to beat. The main disadvantage of the Gateway is that it has only SXGA resolution, (1280 x 1024 pixels) so while the screen is bigger, you may see slightly less detail as on the IBM above.

Compaq Evo N600c (*est. $2800)
Most laptops fall into two categories: Heavy, full-featured desktop replacements (like the Gateway and IBM notebooks) and stripped-down lightweights (such as the Dell). The wireless-ready 1.2GHz Compaq Evo N600c falls in between, say reviewers, with top-notch features (including an internal DVD/CD-RW drive) weighing a little more than five pounds (without the A/C adapter). CNet is impressed with the "responsive keyboard" and calls its 14.1-inch screen "one of the sharpest we've seen." PC World says performance falls behind that of the Dell and IBM above, but some users will be willing to trade a little speed for a big savings in bulk, while retaining an on-board optical drive.

• Dell Latitude C400 (*est. $2800)

The 3.8-pound Dell C400 finishes first in PC Magazine's productivity tests among ultraportable laptops. That said, you give up some extras in favor of decreased heft; there's just one USB hub, along with a video-out and a serial port, so you'll need the $250 port replicator or $500 docking station to hook up peripherals or additional drives. And while the 1.2GHz Dell does include a DVD/CD-RW drive, it's external and hooks up with an IDE cable. If you need a speedy, featherweight notebook, the Dell is a great (if expensive) choice, but if you prefer more connectivity and drive-bay options, you'll be better off with the slightly heavier Compaq above.

Apple Titanium PowerBook 800MHz
G4 (*est. $3200)
MacIntosh. For Mac users, the G4 is the top of the line. It ships with an 800MHz G4 processor, 512MB of RAM, and a 40GB hard drive. Because of its titanium case, the PowerBook sports a 15.2-inch screen, yet weighs a mere 5.4 pounds. Apple packs in an impressive collection of digital-editing and media-management tools including iPhoto, iTunes and iMusic. ZDNet's Gene Steinberg says "Apple has made its sexy business notebook even better." Apple also markets a 667MHz/30GB version for $2500.
Best Laptops, Budget: These days, you can find just about anything in a notebook computer that you can find in a desktop, especially if you're willing to spend $3000 or so on the machines listed in our high-end notebook report. The good news is, for half that price you can buy a lot more than half the power and features of those state-of-the-art laptops. Fifteen hundred or two thousand bucks will get you a unit with the a minimum of the following features: A 1.0GHz Pentium III processor, 256MB of RAM, a 20GB hard drive, a 14.1-inch display and a DVD drive. And you no longer have to settle for an inferior processor; most of the systems discussed here include a Pentium III chipset-unheard of a year ago.
However, experts are quick to point out that shopping for a budget notebook is an exercise in compromise, and while you'll get a notebook that can handle word processing, e-mail and Web surfing, it's probably not going to deliver streaming video and gaming performance.
Many cheaper notebooks use the computer's base memory to deliver video, and outdated graphics cards are common. Some notebooks include wireless networking possibilities, but you'll pay extra. To complicate matters further, the new Windows XP operating system sucks up memory, so you'll need more RAM just for the OS (leaving less for other applications).

Dell SmartStep 100N (*est. $1000)
According to CNet and ZDNet, this Dell offers impressive features for the price: a 1.06GHz Celeron chip, a 14.1-inch screen, and a 20GB hard drive, all in a package weighing a little more than six pounds. On the downside, the 100N doesn't include a CD-RW or DVD drive, it comes with only 128MB of RAM, and a 90-day warranty (it's $50 more for a 1-year warranty) and CNet says Dell scores poorly for service and support. Still, says ZDNet, this notebook boasts "killer performance" and an unusually large screen for its budget price. But if you also want to play games and DVDs, the Compaq below is a better choice.

Compaq Presario 1720 (*est. $1800)
Reviewers say this is a sturdy, all-around budget notebook, as well as a good bet for multimedia applications thanks to its dedicated volume controls and even a button that launches an MP3 player. The 1720 comes with a 1GHz Pentium III chip, 256MB RAM, a 20GB hard drive, DVD-ROM drive, and a 14.1-inch active-matrix TFT screen. Best of all, it weighs in at a svelte 5.2 pounds, an improvement over previous models in this line.

Dell Inspiron 4100 (*est. $1700)
This Dell 4100 has been around for a while, but Dell continues to tweak specs and maintain top performance. This model sits at number two on PC World's top notebooks chart-and not number two among budget notebooks-number two among all notebooks. The 4100 comes with a 1.25GHz Pentium III chip, 256MB RAM, a 20GB hard drive, DVD/CD-ROM combo drive and a 14-inch screen, though it weighs in at a relatively heavy 8 pounds. PC World says this model suffers from weak audio and doesn't have many multimedia goodies, so the 4100 is better for business uses than playing games or CDs.

Apple iBook (*est. $1600)
For Mac enthusiasts, the latest edition of the Apple iBook, with a 600MHz PowerPC G3 processor, gets unanimous raves from experts. Says ZDNet, "Given its extensive feature set, the new iBook isn't just the portable to beat at the consumer level; it's the portable to beat at any level." This version has a CD-RW/DVD combo drive, but you can save money if you choose a single-purpose.


Intel Laptop Survey finds People using them Anywhere & Everywhere
81 Percent Use Laptop PCs While Watching TV; One in Four People Describe Their Laptop as Their "Prized Possession".
Americans have an unlimited imagination for unusual and creative ways to use their laptop PCs, according to the "Laptops & Lifestyles" survey released today by Intel Corporation. The survey of more than 2,400 computer users found that people have used their laptop PCs at weddings and funerals, in coal mines and on top of grain towers, from a Grand Canyon hiking trail to a "dodgy youth hostel in Amsterdam," while riding a horse, milking a cow and building a chicken coop.
Americans use their laptops to be kind (helping a deaf man understand a church service), joyful (sharing thoughts from a wedding with those who could not attend), heroic (remotely shutting down an off-shore oil rig while escaping a hurricane), adventurous (with a GPS device to navigate a sailboat), heartless (breaking off a relationship), and funny (using speech stimulation software "to say silly things to my kids over the phone").
They tend to use them just about anywhere, and often while doing other things. Eighty-one percent reported using their laptops in front of the TV, 60 percent in bed, 54 percent while eating and 48 percent while undressed or in their underwear.
Forty-one percent of respondents used their laptops while riding as a passenger in a car, 39 percent while outdoors, 20 percent while on a train or bus, and 18 percent in a foreign country. The top two ways people feel when they have their laptop PCs with them are "organized" and "connected." "The laptop PC has become an extension of ourselves, offering an unprecedented level of freedom while still helping people to feel organized, connected and in-touch with the world," said Ann Lewnes, vice president, Sales & Marketing Group and director of Consumer Marketing for Intel Corporation. "No matter where our lives, jobs and experiences take us, consumers are increasingly turning to this one powerful device with which they can create, communicate, share and be entertained - anytime and anywhere."
Intel designs a family of mobile processors to enable a broad selection of laptop PCs. The company recently introduced the Mobile Intel(r) Pentium(r) 4 Processor - M, which brings desktop performance and longer battery life to the laptop PC so that people can enjoy digital music, photography, movies and graphic-intensive games anytime, anywhere.
Among Americans who now use a laptop PC, the necessity to have their laptops by their side is strong. Sixty-five percent feel "it is too much of a risk to store their laptop at a coat check or as luggage." More than one in four laptop owners (28 percent) claimed that their laptop was one of their "most prized possessions." More than half (54 percent) regretted leaving it behind on at least one occasion, and 29 percent turned around to retrieve it. The survey also revealed that computer users have a strong curiosity about other people's laptops. Almost half (46 percent) of all respondents admitted glancing at someone else's machine. It was a more common practice among frequent travelers (57 percent), men (53 percent) and people under 35 (54 percent). While the majority (71 percent) looked to see the style or design of the machine, 31 percent were interested in the kind of work a person does, the person (19 percent) or the games they play (19 percent).
Looking ahead, consumers overwhelmingly believe that a laptop PC will remain an essential ingredient in their lives. Ninety-one percent said that laptop PCs would remain "as important or become even more important" to them over the next two years. Their "ideal laptop PC" would allow them to "surf the Internet wherever they are" (84 percent), weigh less (79 percent), provide better battery life (57 percent), offer the digital music capabilities (57 percent) or digital movie capabilities (56 percent) that desktop PCs now have, and enable them to play games with maximum speed and rich graphics (49 percent).  


S. K. Manufacturing
Zinc sheets cut to order
S. K. Manufacturing is the first business in Berbice to make pre-painted corrugated (zinc) sheets. It is also the first in the Caribbean to manufacture machine-made pre-painted aluminum and galvalum gutters that are made to any length. Owner, Suren Mohabir, 40, a Canadian-based Guyanese was holidaying here at the time when the saw the opportunity for such a product. Suren did some marketing research and in 1996 he quit his job and bought the machines, which were shipped down to get the business started at Main & Alexander Streets, New Amsterdam.

Settling only for quality, Suren imports the pre-painted corrugated sheets because these are sturdier and longer lasting. These are sold in different colours in a big roll, but Suren feels the light coloured sheets are better as they attract less heat. He then places the roll in the machine to give them the corrugated ridges and to cut them to a standard length.
The machine makes 50 feet sheets per minute. He makes the sheets mostly on order and delivers it to customers' homes.
Many people who do not know about the pre-painted sheets or who do not want to invest in them settle for the unpainted ones at the stores. The unpainted sheet may be a little cheaper, but he says in the long run people who use them end up spending more money. They also have to pay someone to do the painting. Suren observes too that the unpainted sheets deteriorate faster due to the weather. With the pre-painted sheets Suren claims his customers get their money's worth.
When customers need gutters for their homes Suren takes along the machine in his van and actually makes them on the spot. He prefers to do it this way because he does not have to cut the sheets to carry them. They are made to any length at a rate of 40 feet per minute. By doing this he ensures that the gutters are not joined, so customers do not have to spend money fixing leaks.
It was hard at first for Suren to convince people about the quality of his products.
But now business is picking up . Apart from making those two items, Suren has a machine that manufactures 25 cutlasses per minute. He also makes wooden handles that are nailed onto the top. Suren invested in that business to supply GUYSUCO although they have stopped ordering recently. Suren has plans to invest in business but says space is his major problem.
Three years ago he applied for a plot of land at the Industrial Site in New Amsterdam but says he is still getting a push around. The Government had promised to develop the road and supply water and electricity to the area, but the project is still at a standstill. 


How to Hide $3.8 Billion in Expenses
Wondering what exactly WorldCom did and how it did it? Here's a guide to the prime factors behind the latest corporate scandal
When WorldCom Inc. (WCOM ) revealed on June 25 that it had uncovered a $3.8 billion accounting fraud, everyone from the smallest investors to President George W. Bush reacted with shock and outrage. How was this possible? How could such an established company have hidden such huge expenses from the investing public? Here's a look at what WorldCom did and how the company did it.

What exactly did WorldCom do?
During 2001 and the first quarter of 2002, the company counted as capital investments $3.8 billion that it spent on everyday expenses. This makes a difference because capital investments are treated differently from other expenses for accounting purposes. Capital spending is money used to buy long-lasting assets, like fiber-optic cables or switches that direct telephone calls, so the cost is spread out over several years.
For example, if World-Com spent $10 million on switches it expected to last 10 years, it would book a $1 million expense for 10 years. In contrast, if it spent $10 million on office space, it has to count all of that expense in the period in which it occurred. The company says the expenses that were counted as capital expenditures involve "line costs," which are fees WorldCom pays to other telecom players for the right to access their networks.

How does this affect profits?
Counting everyday expenses as capital investments boosts net income because expenses that are supposed to be counted in one quarter are spread out over years. WorldCom originally reported net income of $1.4 billion in 2001 and $172 million in the first quarter of 2002. Now the company says it lost money the whole time. "You do this to make your bottom line look better," says Rosemarie Kalinowski, an analyst with debt rating agency Standard & Poor's.

How is cash flow affected?
Different people use the term "cash flow" to mean different things. What WorldCom did affects cash generated from operations, a closely watched line in financial statements. World-Com originally reported that its operating activities in 2001 produced $7.7 billion in cash. Now, it says that figure really was $4.6 billion.
But WorldCom's overall cash flow isn't affected because the restatement will lower the amount of cash reported as used in investing activities, which include capital investments. So the two changes cancel each other out. It does, however, affect another measure of cash flow, something called EBITDA.

What's EBITDA?
EBITDA stands for earnings before interest, taxes, depreciation, and amortization. Investors see this as a more accurate barometer of a company's health than cash flow from operations. This is where WorldCom's accounting games had the biggest impact. The company originally reported that its EBITDA for 2001 was $10.5 billion. Now it says the figure really was $6.3 billion. In the first quarter, it reported EBITDA of $2.1 billion, while the real figure was $1.4 billion.
In other words, WorldCom was in much worse shape than investors and banks thought. "This is an industry where companies trade based on EBITDA," says Robert Willens, an accounting expert at Lehman Brothers Inc. "Capitalizing expenses has a direct impact on EBITDA."

Does this mean investors can no longer rely on cash flow?
Not necessarily. Capitalizing expenses is not that common because it's so easy to detect. While there are some gray areas, it's pretty clear what should be counted as everyday expenses and what should be counted as capital expenditures. "This is sort of obvious to anyone who bothers to look at it," says Willens. "This doesn't involve offshore partnerships or special purpose entities. This is Accounting 101."

So where were the auditors?
Good question. WorldCom's auditors were from Arthur Andersen LLP, which says its work for the company complied with all accounting standards. The WorldCom fraud came to light when John W. Sidgmore became chief executive in April and ordered an internal review of the company's books. The probe was conducted by WorldCom's new auditor, KPMG, as well as WorldCom employees. At its completion, WorldCom announced the restatement and fired its chief financial officer, Scott D. Sullivan.
If there is a silver lining in the WorldCom fiasco, it's that this sort of accounting fraud can be uncovered quite easily - you just need accountants who are looking for it. 


Managing conflict
This is the second in a series of articles prepared by Dr Godfrey Sears, President of the International University Guyana. The articles are intended to help companies with various aspects of management, marketing and human resources
Continued from last month

Stage of Evolution
Important conflicts among people ordinarily do not erupt suddenly. They pass through various stages, and the way in which the energy of the disputing parties can be effectively directed by the manager depends to some extent on the stage of the dispute when he enters the picture. One way of diagnosing a dispute - the third major question - is to identify it as being at one of these five stages in its development.
Stage #1- The Phase of Anticipation. A manager learns that his company is about to install new, automated equipment which will reduce the number and change the number of jobs in a given department. He can anticipate that when this information is released, there will be differences of opinion as to the desirability of this change, the way in which it should be introduced and the way in which the consequences of its introduction should be handled.
Stage #2 - The Phase of Conscious, but Unexpressed, Difference. Word leaks out about the proposed new equipment. Small clusters of people who trust one another begin discussing it. They have no definite basis for the information, but tensions begin to build up within the organization. There is a feeling of impending dispute and trouble.
Stage #3 - The Phase of Discussion. Information is presented about the plans to install new equipment. Questions are asked to secure more information, to inquire about the intentions of management, to test the firmness of the decision that has been made. During the discussion, the differing opinions of individuals begin to emerge openly. They are implied by the questions which are asked, and by the language which is used.
Stage #4 - The Phase of Open Dispute. The union steward meets with the foreman to present arguments for a change in plans. The foreman counters these arguments by presenting the reasons that led management to decide to install the equipment. The differences which have heretofore been expressed only indirectly and tentatively now sharpen into more clearly defined points of view.
Stage #5 - The Phase of Open Conflict. Individuals have firmly committed themselves to a particular position on the issue; the dispute has become clearly defined. The outcome can only be described in terms of win, lose, or compromise. Each disputant attempts not only to increase the effectiveness of his argument and his power in the situation, but also to undermine the influence of those who oppose him.
The power of the manager to intervene successfully will differ at each of these stages. He is likely to have the most influence if he enters the picture at stage #1; the least influence if he enters at stage #5. This range of possible behaviour and action changes as the conflict passes through the various stages. For this reason, it is important for the manager not only to assess the nature of the given dispute and the forces affecting the individuals involved, but also to assess the stage to which the dispute has evolved.

SELECTING AN APPROACH
After the manager has diagnosed a given dispute (or a potential one) between subordinates he is next confronted with the problem of taking action. There are two additional questions that will be helpful to him to consider.
1. What courses of action are available?
2. What must be kept in mind in selecting the best one?
Assuming, first, a situation in which the manager has time to anticipate and plan for an impending dispute, it is suggested that the general approaches typically available to him are (a) avoidance, (b) repression (c) sharpening into conflict, and (d) transformation into problem solving. In deciding which to use, the manager's primary concern should be to select the alternative that will yield optimal benefits to the organization.

Avoidance
It is possible for a manager to avoid the occurrence of many differences among his subordinates. He can, for example staff his organization with people who are in substantial agreement. Some organizations select and promote individuals whose experiences are similar, who have had similar training, and who come from a similar level of society. Because of such common backgrounds, these individuals tend to see things similarly, to have common interests and objectives and to approach problems in much the same way. A staff thus developed tends to be a very secure one: the reactions of one's fellows are both readily predictable and congenial to one's way of thinking and doing. The manager may also avoid differences among his subordinates by controlling certain of their interpersonal contacts. He can, for example, assign two potentially explosive individuals to different groups or physical locations, or he can choose to raise a particularly divisive issue because it is "too hot to handle".
When is this alternative appropriate? Some organizations depend heavily on certain kinds of conformity and agreement among their employees in order to get the work done. Political parties and religious denominational groups are perhaps extreme examples of this. If an individual holds a different point of view on a rather fundamental issue, he may become a destructive force within the organization. This approach may be especially important if he is dealing with somewhat fragile and insecure individuals. Some persons are so threatened by conflict that their ability to function effectively suffers when they operate in a climate of differences.
What are the difficulties and dangers in this approach?
The manager who uses this approach consistently runs the risk of reducing the total creativity of his staff. When everyone in the room thinks the same thing, no one is thinking very much. In an atmosphere in which differences are avoided new ideas not only appear less frequently, but old ideas are also likely to go unexamined and untested. There is genuine danger of the organization's slipping unknowingly into a rut or complacency.

Repression
Sometimes a manager is aware that certain differences exist among members of his staff, but he feels that the open expression of these differences would create unproductive dissension and reduce the total creativity of the group. He may, therefore, decide to keep these differences under cover. He may do this by continually emphasizing loyalty, cooperation, teamwork, and other similar values within the group. In such a climate, it is unlikely that subordinates will express disagreements and risk conflict.
The manager may also try to make sure that the potentially conflicting parties come together only under circumstances which are highly controlled - circumstances in which open discussion of latent differences is clearly inappropriate. or he may develop an atmosphere of repression by consistently rewarding agreement and cooperation and by punishing (in one way or another) those who disrupt the harmony of the organization by expressing nonconformist ideas.
When is this alternative appropriate? It is most useful when the latent differences are not relevant to the organization's task. It is to be expected that individuals will differ on many things - religion, politics, their loyalty to their country, football, cricket, etc. There may be no need to reach agreement on some of these differences in order to work together effectively on the job. It may also be appropriate to repress conflict when adequate time is not available to resolve the potential differences among the individuals involved. This might be particularly true if the manager's concern is to achieve a short-run objective and the potential disagreement is over a long-run issue. The wounds of disagreement should not be opened up if there is insufficient time to bind them.
What are the difficulties and dangers in this approach? Repression almost always cost something. If, indeed, the differences are important to the persons involved, their feelings may come to be expressed indirectly, in ways that could reduce productivity. Every manager has witnessed situations in which ideas are resisted, not on the basis of merit, but on the basis of who advocated them or he has seen strong criticism arising over mistakes made by a particularly disliked individual.
Much has been said and written about "hidden agenda". People may discuss one subject, but the way they discuss it and the positions they take with respect to it may actually be determined by factors lying beneath the surface of the discussion. Hidden agendas are likely to be around in an atmosphere of repression. When strong feelings are involved in unexpressed differences, the blocking of these feelings creates frustration and hostility, which may be misdirected toward "safe" targets. Differences, and the feelings generated by them, do not ordinarily disappear by being ignored. They fester beneath the surface and emerge at inopportune moments to create problems for the manager and his organization.
Sharpening into Conflict. When this approach is used, the manager not only recognizes the fact that differences exist, but attempts to create an arena in which the conflicting parties can "fight it out". However, like the promoter of an athletic contest, he will want to be sure that the differing persons understand the issue over which they differ, the rules and procedures by which they can discuss their differences, and the kinds of roles and responsibilities which each is expected to bear in mind during the struggle.
When is this alternative appropriate? A simple answer is: "when it is clarifying and educational". Many individuals will not pause to examine the assumptions he advocates until he is called on to clarify and support them by someone who holds contrary views. In the same way, the power of realities within an organization can come into sharper focus and be more commonly recognized through conflict.
Another valuable thing learned is the cost of conflict itself. Almost invariably at the end of a long dispute, there is a strong resolve that "this shall not happen again," as the individuals reflect on the financial costs, tensions, embarrassment, uneasiness, and wasted time and energy it caused.
What are the difficulties and dangers of this approach? Conflict can be very costly. It not only saps the energy of those involved, but also may irreparably destroy their future effectiveness. In the heat of conflict, words are sometimes spoken which leave lifelong scars on people or forever cloud their relationships. Because the risks involved in conflict are so great and the potential costs are high, the manager will want to consider carefully the following questions before he uses this approach:
1. What does he hope to accomplish?
2. What are the possible outcomes of the conflict?
3. What steps should be taken to keep the conflict within organizational bounds and in perspective?
4. What can be done after the conflict to strengthen the bonds between disputants, so that the conflict will be of minimum destructiveness to them and to their ongoing relationship?

Making it Creative
"Two heads are better than one" because the two heads often represent a richer set of experiences and because they can bring to bear on the problem greater variety of insights. If the differences are seen as enriching, rather than as in opposition to each other, the "two heads" will indeed be likely to come up with a better solution than either one alone.
For example, had the six blind men who came into contact with different parts of the same elephant pooled their information, they would have arrived at a more accurate description of the animal. In the same way, many problems can be seen clearly, wholly, and in perspective only if the individuals who see different aspects can come together and pool their information.
When is this alternative appropriate? When it comes to choosing courses of action to a given problem, differences among the individuals in an organization can help to increase the range and variety of alternatives suggested. The channelling of differences into a problem solving context may help to deal with some of the feelings, which often accompany disagreement-frustration, resentment, and hostility. By providing an open and accepted approach, the manager helps to prevent undercurrents of feelings, which could break out at inopportune moments.
He also helps to channel the energy generated by the feelings into creative, rather than into destructive, activities. Whereas conflict tends to cause individuals to seek ways of weakening and undermining those who differ with them, the problem-solving approach leads individuals to welcome differences as being potentially enriching to one's own goals, ideas and methods
What are the difficulties and dangers in this approach? To utilize differences requires time. Often it is easier for a singular individual (rather than two or more persons) to make a decision. Also, when a rapid decision is required, it may be easier and more practical to ignore one side of an argument in order to move into action.
Finally, unless a problem solving situation is planned with some care, there is always the risk of generating conflict which will be frustrating to all parties concerned.
To be continued next month 


Sugar prices still weak
The sugar market has been in a clear downtrend since the highs in the 10.50 c/lb area seen in July 2000. There have been a number of failed attempts to break out of that downtrend but, if anything, the fall in prices has accelerated over the last year. Since January this year, prices have twice found support at around 4.84 c/lb - the low made in late February 2000 - and this encouraged the funds to believe that the bear move was running out of steam. They covered their shorts, went long and the market rallied to make a false breakout from the steeper downtrend. The breakout failed because of the producer selling that capped the market at 6.0 c/lb.
From a fundamental point of view the whole move over the last two years - from lows to highs to lows again - can be ascribed to Brazil. Prices were low at the beginning of 2000 because of the recently expanded production in Brazil following the end of the Proaclool programme. A drought in South Brazil led to expectations of lower production and prices doubled. However, neither production nor exports were as low as feared and prices have been sliding since then. The reason we believe that prices have already double-bottomed twice below 5.0 c/lb is not that there is a huge amount of buying there, but rather that the producer selling runs out. At those prices we are below the cost of production for even the most efficient producers and none of them are in any particular hurry to lock in a loss. Particularly as most of them (apart from the Australians) are in a better cash flow position.
The way that Brazil has come to dominate the world sugar market has enormous consequences for future price moves. As other producers drop out or scale back, the world price becomes tremendously sensitive to any changes in production within Brazil. Sometime over the next ten years it is almost inevitable that Brazil will suffer some sort of weather related set back. Prices will react accordingly. Date: 14/06/2002 12:52:00

Long liquidation from the funds has fed on itself over the last few days, driving the market down once again into the low 5.0 c/lb level. Trade scale buying has been evident at every point down - almost certainly for the Russians - but this has proved insufficient to prevent the collapse. Yesterday saw a technical correction after a series of down days but the corrective rally ran into good scale selling. The current fund long is now estimated at somewhere close to 20,000 lots - down from a recent estimated high of 38,000 lots. This is giving the bulls hope that the fund liquidation will soon dry out although the bears believe that the funds could now go short again. If they do, then that will mean further weakness.
The bull argument has been that producers won't follow the market lower because they are well financed and that they will store their sugar rather than sell it below their cost of production. To a certain extent this is probably true - and the lack of producer selling explained why the funds and locals (with an assist from the Russians) managed recently to push the market up to 6.0 c/lb. Once it got there, however, the producers were keen sellers - and not just for this year but also for next. The main sellers, of course, were the Brazilians, looking to take advantage of their weakening currency and lock in returns as far forward as possible. With the world moving back into a statistical surplus, other producers may also have decided that 6.0 c/lb was not that unattractive after all - even if it is still below their cost of production.
Some traders have been bullish recently because of the steadiness of the physicals on good off-take from Iran, Egypt and Russia. Unfortunately, reports that Iran has more than doubled import tariffs have cast a shadow over their recent purchases while the larger than anticipated shipments to Russia are weighing on cost and freight values. As the world price drops it becomes less unattractive to import out-of-quota sugar into Russia and this will absorb some of the surplus and may give some support to values. After the end of June, however, all eyes are fixed on the one million tonnes per month to be shipped out of South Brazil. (Sugaronline.com) 


The Month in Business
Telecom static
ATN flexed its muscle in its long running negotiations with the Guyana government over telecom reforms by lobbying against an US$18m IDB loan promoting information technology. ATN, parent company of GT&T, was unapologetic over the move citing the U.S. Foreign Assistance Act which looks to safeguard US companies' interests abroad and said it had lost faith in the government as a negotiating party. President Jagdeo described the move as blackmail.
Soon after ATN President Cornelius Prior winged into Guyana as the inevitable media war heated up. Prior said the two parties had made some agreements in meetings in Trinidad including ATN giving up its monopoly on data transmission in exchange for "a few things." What those few things might be was still to be considered by the Cabinet.
With the continued acrimony it appears the much vaunted internet revolution and even competition in the cellular phone market will be put on hold a while longer.

DDL profits up
Group profits for Demerara Distillers Ltd increased by 10% in 2001 to $793m.
Earnings per share were $1.03 up from .84 in 2000 and the total dividend payout will be $231m an increase of 30%. The group spent $1.245bn in capital expenditure through overseas and local financing and states that it restructured its financing so as to minimize financing costs Its shares currently trade at $7.00.

Marks sparks
The country was treated to the rare spectacle of a plain talking public servant when events boiled over within the Customs and Trade Administration. Chief Comptroller Lambert Marks called an impromptu press conference accusing Commissioner of the GRA Edgar Heyligar of putting pressure on him to authorise the release of containers for certain businessmen.
Marks also rashly alluded to various unsolved murders and allegations of corruption. Things backfired on him when an investigation was launched into the release of two containers allegedly under invoiced to the tune of $700,000.

Bounty Farms opens $45m Meat Centre and Supermarket
Despite the current political and economic uncertainty the John Fernandes Group of Companies opened a $45M Meat Centre and Supermarket at Regent Street and Orange walk. Chairman Chris Fernandes urged the government to find ways to attract investment and create jobs saying as the elected party the onus was on them to find solutions to the country's problems.

Linmine privatisation closer
The Government and Canadian Mining Company Cambior Inc signed an agreement paving the way for a feasibility study on the resuscitation of the bauxite industry in Linden. Cambior would take an 80% share of the new company and the government the remaining 20% with Cambior expected to inject $30M to upgrade equipment, the mine site and for working capital.