IMF/World Bank team advocates power-sharing mechanisms
- to bring the stability needed for growth
By Gitanjali Singh
Stabroek News
April 6, 2003
An International Monetary Fund (IMF)/World Bank team of economists suggests that Guyana embrace power-sharing mechanisms to secure a peaceful political environment.
The team says this would also allow the country to overcome the challenges to high growth rates and poverty reduction.
Assessing Guyana’s experience with structural adjustment and its future efforts, in the most recent IMF paper on Guyana, the team highlights the need for political stability as well as an increase in the level of security.
The paper notes that Guyana’s strategy to reduce poverty and secure high sustainable growth levels faces a number of risks, including the prospect of weak commodity prices - which could see future terms of trade shocks, and the threat to preferential sugar markets. The paper also points out that Guyana has repeatedly been hit by natural disasters, which have negatively impacted on its agriculture base. While these are issues outside of Guyana’s control, what is within the country’s control is the environment for investment to expand the economic base and realise the country’s potential.
The challenge, the team of economists say, would be to overcome the political divide by strengthening democratic institutions, increasing dialogue and consultation among political parties and civil society, and fostering inclusiveness in decision making. The latter, the team argues in the paper released on March 19, could be through power-sharing mechanisms.
The paper, available from the IMF at a cost of US$18, says Barbados has such a mechanism, called a social contract. This is underpinned by the recognition that the action by each player in society must be in the interest of the nation.
The team of economists comprises Philippe Egoume’ -Bossogo, Ebrima Faal (former IMF representative in Guyana), Raj Nallari (World Bank official) and Ethan Weisman. Their paper benefits from the comments and suggestions of former head of mission to Guyana, Gopal Yadav, and his replacement, Jorge Guzman as well as other IMF officials Ewart Williams and Leonardo Cardemil.
Looking ahead, the paper calls for “strong governance” in the use of the country’s scarce resources, particularly the heavily indebted poor countries’ initiative assistance. The paper says that given the multi-ethnic, multi-cultural society that Guyana is, discrimination whether real or perceived, should be combated to “nurture a sense of common belonging and purpose.” It also notes the need for the government to improve security for people and their property in a similar manner.
Among the other challenges for Guyana highlighted by the team were the need for society to engage in an open discussion for an agreement on a “balanced public sector wage policy” which is fair to workers and at the same time does not “disproportionately” divert resources made available for poverty reduction.
“In view of the history of strikes and civil disturbances associated with wage settlements, there is need for dialogue to ensure that the wage bargaining process between the government and its employees remain apolitical,” the team of economists says.
They note that the credibility of fiscal policy and the efficiency of the public service would be greatly enhanced by the adoption of a prudent, merit-based wages policy. The paper calls for a reform of the bargaining process in the public service to conform to this principle and to minimise public disruptions, which usually surround wage negotiations. Differentiation of wage awards based on merit is seen as a key factor to attract and keep qualified staff in the public service.
The paper also notes the need to reform the pay scale and reduce the overpopulation in low-skill grades, while more skilled personnel are hired, especially in middle management where such skills are scarce.
Another challenge is for the government to urgently improve the implementation and monitoring capacity of the public sector to improve macroeconomic management and increase the pace of implementation of structural reforms.
The paper, which contained a study on economic growth, says further structural reforms would have a significant impact on the growth performance of the local economy.
“Policies that encourage investment and allow the workforce (especially skilled labour) to expand will foster economic growth. Other policy efforts will be important to encourage economic growth, including the maintenance of macroeconomic stability and the implementation of structural reforms to encourage private sector investment,” the paper says. It notes that Guyana would remain susceptible to external shocks and should pursue public sector efficiency and more privatisation particularly in sugar and bauxite, whilst implementing further trade reforms and improving the regulatory regimes for the financial, energy and telecommunications sectors. The government also needs to promote transparency and good governance in public sector transactions and pursue prudent fiscal and monetary policies, the paper notes.
Among the structural reforms is that for the pension system, to allow for the long-term solvency of the National Insurance Scheme. NIS surpluses are set to decline due to the increase in the number of pensioners, the recent unsustainable increases in benefits and economic stagnation. Contributions are to be increased gradually to allow for the solvency of the current pay as you go system.
Other reforms include improvement of the budget process; revamping the public sector investment programme to improve selection, implementation and monitoring of public sector capital projects; and reform of the procurement and tendering process as well as the judiciary.
The latter is to achieve strengthened independence, while promoting fair and expeditious administration of justice. Land acquisition and titling are also to be made more transparent and property rights reaffirmed and protected. The restructuring of Guysuco is key as well as Bermine and Linmine.
Reforms are needed to achieve a sounder financial system with a focus on improved regulations and compliance. The team notes that though the Financial Institutions Act is largely consistent with international best practices the failure of a tiny deposit taking institution recently (Globe Trust) highlighted the need to strengthen some of its aspects and tighten enforcement. There is the need for strengthened supervision of the financial sector and to provide for a proactive feedback and remedial instructions, which will carry sanctions if they are breached. A standard chart of account is also to be developed to bring uniformity and comparability to bank accounts and to make it easier to monitor banks and collect financial data.
Certain laws should be reformed to achieve a faster realisation of collateral and foreclosures. The Bank of Guyana Act would also be strengthened to allow the Bank to take faster and decisive action against financial institutions, which pose a potential systemic risk. A commercial court is also to be established to expedite the resolution of commercial disputes.
The economists also note the need, as they look ahead, for donor agencies and institutions to co-ordinate their technical assistance to avoid duplication and to reduce the demand on the already over stretched counterpart resources. Efforts, the team say, have to be redoubled to improve data quality for economic management and evaluation. Guyana, the team adds, should take full advantage of the various offers of free technical assistance.
Other challenges Guyana would need to overcome include the continued emigration of skilled workers. The team notes that this emigration negatively impacts on productivity and prevents the accumulation of practical knowledge needed for younger, inexperienced workers.
“Although Guyana would be hard pressed to compete with salaries offered in immigration countries, it could woo back some of its best minds by creative packages including in-kin payments, such as land,” the team notes.
The economists also highlight the need for Guyana to maintain its macroeconomic policies on the right track and to accelerate the necessary structural reform that would sustain growth in face of declining international aid.
“Like many developing countries, Guyana’s products face entry barriers to industrial countries’ markets.
Nevertheless, with the current WTO negotiations for more trade openness, there is a silver lining. Guyana can count on the Caricom market as well the Free Trade Area of the Americas that is expected to come on stream in 2005 to expand its exports,” the paper says.
