WHAT THE DOCTOR ORDERED
July 16, 2015 | By KNews | Filed Under Features / Columnists, Peeping Tom, Source
Before you administer any treatment you first must diagnose the problem. This is true whether you are dealing with illness or whether you are dealing with the economy.
There are problems with the economy. There has been a dramatic slowdown in business activity. If the government does not believe the local business community, then at least it could ask the banking sector to provide some data on two indices: the level of commercial credit and the amount of deposits made by businessmen.
The government has proposed a treatment for the problems of the business community. As previously argued the problem may be one of business and not the economy. People may be spending less in Guyana even though they may be earning the same or more.
There are ways for this to be determined and if the experts in the Ministry of Finance and the Bank of Guyana do not know how to make this assessment, they should scream for help. There are Guyanese overseas who can help.
They do not need to come to Guyana. All they will need is the data to do their analysis. If the data is not there or there are gaps or deficiencies, then these have to be filled and corrected.
The government, to some extent, accepts that there is a problem. But it does not want to accept or it does not have evidence to conclude that there has been a recession.
It is interesting that the government is denying that there is a recession because when it first came in to office it accused the former administration of fudging the numbers. It said that the growth was marginal at best. It is therefore surprising that it should now be contending that there is no recession. But perhaps that may not be an informed view.
The business community will however tell you that things have slowed appreciably. In the past the local businessmen used to blame the stores operated by Chinese nationals. These foreigners were the whipping boys of the commercial class.
The decline in local sales was attributed to the competition provided by stores owned by foreign nationals.
This time this is not the assessment that is being made. The business community for all its faults has a knack for understanding the cause of problems. It may not always be willing to admit what it knows but it knows.
Right now the business community knows that sales have slowed. What is responsible for this? Well the business community has an idea. The businessmen believe that people are spending less, not just government which is hardly spending at all. But people are spending less.
Even those who like to use this period to go shopping overseas are not doing so. People are holding in on their money.
The main reason why they are holding in is because they are uncertain. They do not know how the new government will manage the economy. So people are circumspect and may not be spending.
There is no evidence as yet of any massive capital flight. The exchange rate is holding steady even though it has depreciated marginally since the new government came to power.
The solution that the government is proposing is to increase wages and to provide a stimulus package. This is another way of saying that the new government will increase government spending, the same Keynesian strategy that the PPP employed over the past few years. The government is not offering new solutions to old problems.
But is increased government spending the solution? If the government has not yet settled on a diagnosis of the problem, it seems a bit strange that they should be offering solutions such as increased wages- which have to be negotiated with the unions.
If the government also proposes to spend more on public works, then the issue becomes whether this spending will boost business activity in general. Doubtful!