PSC petitions National Assembly for passage of AMLCFT Bill – to be heard at tomorrow’s sitting

Introduction

The Stabroek News reported on October 24 that the Private Sector Commission (PSC) is deeply troubled about APNU’s statements regarding the Marriott project. The report stated that the Chairman of the PSC, Mr Ronald Webster, wrote to APNU expressing the PSC’s concern that statements made by the opposition party regarding the Marriott are increasing political risk for businesses in Guyana.

In spite of being an ethnically divided society, Guyana’s tax payers come from all ethnicities. Therefore, to reduce political risks, spending of tax funds must be done in the most transparent manner and must be based on credible investment projects. The taxpaying public has to believe that the government is being as fair and as economically efficient as possible. The Marriott is neither transparent nor economically sensible in any honest sense, thus adding a significant dimension to political risk. It is this dimension that the PSC seems unable to recognize. This column proposes the essential point: if the government is concerned about political risk it has to be credible when it spends the tax money of the people. Moreover, the PSC and the government must consider all dimensions of political risk, instead of invoking political risks in ways that are convenient to some special group.

Political risks

Risk implies that we can assign a probability outcome to some future event (Economists utilize various probability and volatility models to measure risk, a concept completely different from fundamental uncertainty which cannot be measured. Probabilities can be based on an educated subjective guess or could be estimated from historical data). These risks can come from many sources, and some risks can be diversified away as in the case of a portfolio of stocks. However, political risks are not easy to measure and they do require assigning subjective probabilities. Risk is important because when it increases, the investor, specifically private investor, would require a higher expected profit before he/she invests. Otherwise, the investor holds on to low risk cash or liquid assets such as Treasury bills.

Overall, if the government’s policies are not credible and can be seen as unfair, it will increase political risk, particularly in an ethnically divided society like ours. For example, political risk can also emerge from the failure of President Ramotar to assent to Bills passed unanimously in Parliament, the people’s Parliament. The President cannot provide a credible justification for not signing the four local government bills. These are crucial aspects of post-2011 democracy that can deflate national tensions, allow independents to participate in the democratic process and enable the main political parties to participate in local democracy. This is an excellent mechanism for easing tensions and reducing political risk. Why has the Chairman of the PSC not assigned a subjective probability to this event also? Why has the chairman not called on President Ramotar to sign the bills that can ease opposition resentments and diminish political risks?

The Marriott investment, which uses the people’s money, is problematic at many levels. First, Guyanese are not employed in the construction phase and no commitment was made on the percentage of Guyanese who will work there once completed. Second, the feasibility study motivating the Marriott made highly unrealistic projections of revenue. The assumption was made that finding oil will bring in many foreign executives who will require a stay at the Marriott. The planner at NICIL failed to consider the possibility that Venezuela will not allow Guyana to exploit its natural resources in the Essequibo. The PPP government has worsened the situation by failing to have a credible foreign policy that can deter Venezuela. Furthermore, the government tied the economic fortunes of the country to a tenuous left-wing alliance with Venezuela which is also the source of fuel and a main market for Guyana’s rice. Any properly trained analyst will assign a high subjective political risk probability given the government’s foreign policy vis-à-vis Venezuela. This relationship could have a negative impact on the Guyana investment climate, specifically in non-rice producing sectors.

Third, Mr Robert Badal in a recent letter noted that given the low hotel occupancy rate in Guyana, the Marriott will just be able to cover its interest on the debt. Mr Badal’s conclusion is corroborated by the fact that the secret investor is given a large discount before buying into the project. The secret investor will spend US$8m for a 67% share in Marriott, while the government which spent US$20m of the people’s money will own only 33%. This discount, of course, stems from the fact that the project was not viable to begin with and the only way the government can motivate a private investor to participate is to provide a sweetheart deal. Fourth, the fact that the government refuses to name the private investor sends terrible signals to any observer interested in transparency, regardless of political preference. That could signal a dishonest transaction and engender political risk, which the PSC appears unwilling to consider.

National Unity

The project of achieving national unity is often compromised when the public cannot trust the investment choices of the government. When the public believes that the government’s investments are meant to enrich only a few while engendering risks and uncertainty for the many (example, the Skeldon sugar factory), there will be heightened tensions that will worsen the investment climate for our much needed private investors and capitalists.

The PSC can use its influence to push the government to establish a development planning system that will oversee NICIL, which sometimes seems like a one man planning unit. I also urge the PSC to be patient. The scholarly literature notes that indeed oligarchies may grow faster in the short-term but they eventually must come to a crash because the privileged will erect barriers to entry against those on the outside. The privileged will become divorced from domestic public service, preferring to go abroad for medical treatment, live in gated communities, and refuse to send their children to public schools. The latter is a recipe for uneven development and entrenchment of the privileged. Democratic societies tend to grow more slowly but the growth is more certain and less volatile.

The PSC can encourage the minority government to work with the Opposition in Parliament to establish systems that will foster national unity and minimize political risks. The objective of national unity can be better served if it is based on several obviously agreeable principles. Over the next few weeks this column will outline a few possible principles on which to build national unity. I will argue that these principles can anchor the agenda of national unity, thereby reducing the political risks with which the PSC is rightly concerned. In the next fortnightly essay, I will discuss how a developmental state can have the capacity to engender national unity, thus easing tensions in the society. Let me end by saying that political regimes will come and go, but a developmental state must remain resolute.

Comments: tkhemraj@ncf.edu