Suffering from the Dutch Disease

Dear Editor,

I REFER to the letter written by C. Ramson (MP) published in the Stabroek News edition of 05/12/2015 and titled ‘A Sovereign Wealth Fund is not what Guyana needs’. The author suggested that a Sovereign Wealth Fund (SWF) is not what is needed in Guyana without giving ‘justifiable’ reasons why.

He has completely discounted the reality of the disease (which has crippled many economies), suggesting that it is “over referenced and universally false”.

From the letter, it is pellucidly evident that he lacks pedestrian knowledge of the Dutch Disease phenomenon and the role of a SWF. As a legislator, one ought to be knowledgeable before pronouncing on matters of national interest. There is no paucity of Dutch Disease literature, therefore his ignorance is highly unacceptable. It is often asked why resource rich nations continue to do more poorly than nations without resources. Simply put, the answer is improper management of the resources and its proceeds. We have an unborn oil sector with lots of unveiled potential. In fact, it can be Guyana’s passport to prosperity, once used prudently. Further, we have the perfect opportunity to get it right, and secure wealth for this and future generations.

The APNU+AFC government must be commended for wanting to establish a Sovereign Wealth Fund. It is indicative that the administration is being prudent.

Of all the measures that are taken to make a nation immune to the Dutch Disease, establishment of a SWF should be top priority. It should be noted that a SWF has many purposes and is not limited to investment and budgetary stabilisation, as the author wants the public to believe.

Additionally, it should be made clear that the SWF will benefit Guyanese of today, directly and indirectly, while simultaneously taking future generations into consideration.

The establishment of SWF seeks to prevent overheating of the economy and exchange rate appreciation, while expanding the national revenue base to benefit multiple generations of citizens. Saving abroad serves to reduce the excess supply of foreign currency that will be in the economy in the form of domestic currency. This measure is necessary to control excess demand, which is likely to manifest and deteriorate the expenditure structure of the economy i.e. consumption expenditure, which is likely to place upward pressure on the prices of commodities in the services sector.

SWFs adopt an inter-temporal approach, and not careless and extravagant spending as if there is no tomorrow. The “Permanent Income Approach” criterion is normally utilised to guide fiscal policy. The approach recommends that fiscal spending of resource revenue be limited to a calculated constant real amount, and the rest be saved abroad. When the resource has been depleted, the government can then withdraw from its accumulated savings to continue spending the same constant real amount.

Revenues are then reinvested in physical capital and, to a greater extent, human capital. Resources are channelled into infrastructural development, education, and research and development in a sustainable fashion. A comprehensive and sustainable scholarship scheme should be implemented to aid in the development of the human capital. This act can be seen as investing the revenue from today’s natural resources into the development of tomorrow’s human capital.

Mr Ramson, should we adopt a solution-oriented approach? It would be wise for him to divorce himself from the narrow partisan politics at this point and aid, in whatever way he can, in getting Guyana onto the right path to sustainable development, even if it’s simply by constraining himself from misinforming the public.

Yours faithfully,
Elton Bollers

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