– “Speakers are losing sight of the bigger picture”
PRESIDENT Bharrat Jagdeo yesterday said that he is absolutely disappointed with the quality of the contributions over the past week during the budget debate in the National Assembly.

He said the issues that are arising in the National Assembly are mostly frivolous and the speakers are losing sight of the big picture, adding that even when suggestions are made in a peripheral way on how we should respond to this global crisis, it is done flippantly.

President Jagdeo, who was speaking at the annual Officers’ Conference in Camp Ayanganna, said that the oppositions’ continued call for a reduction in the Value Added Tax (VAT) is one lacking in a demonstration as to how this can be an effective response to the global financial crisis.

“But the first thing that the people are saying is we should have a Fiscal Stimulus package, and it is just parroting what is happening in some of the developed jurisdictions of the world” the President said.

He stated that if one examines the origin of the crisis, its impact on developed and developing societies are different, adding that in the developed world this phenomenon was created by a major slump in the mortgage financing banks and this is a problem that the developing world has not experienced, or some to a lesser degree.

However, the President said that if a response is to be crafted in Guyana to deal with the crisis, we do not to have to craft one that deals with mortgage prices because Guyana does not have a mortgage crisis as people continue to build houses and the country has not seen a collapse in housing prices.

“So to call for a Fiscal Stimulus package similar to that being pursued in the United States of America or in other parts of the world is not appropriate because it does not take account of our situation” he pointed out.

President Jagdeo added that most of these same countries can introduce such a package because their borrowing was denominated in local currency, but when the developing world borrows it does so in foreign currency.

He added that if a country has an exchange rate depreciation, which will come if there is too large a fiscal stimulus package in the developing world, automatically it will eat into inflation and exchange rate depreciation, and this will lead to even more debt in local currency terms.

“The United States of America, Germany and Britain, they don’t have to worry about this because most of their forms are borrowed in local currency, trade – able local currency, so they can pursue large fiscal packages, they can run up their debt to unsustainable levels but it will not have the same impact as it would on a Barbados or Guyana or if some other developing country were to do the same”, the President said.

He stressed that the call for such a package could become counter-productive in a country such as ours.

In the developed world now there is a credit crunch, but Guyana does not have that problem as there is a very liquid banking system in this country, making the situation very different here, President Jagdeo said.

“What is needed is a real response to what is taking place in the world, we don’t want any response, we want a response that will work, so when we decided to have a bigger budget this year than last year, that was a response” the President pointed out.

He added that Government did not have to come up with special measures to unlock credit, to prop up prices in the asset market as there was no visible shrinkage of prices in that market, or measures to deal with large scale layoff as seen as in the US.

Therefore the Government’s response has to be very different, he stated, adding that as mentioned before Guyana is affected in the area of remittances and there is nothing that Government can do about that.

He stated that Government cannot do anything about the cost of borrowing internationally, but luckily there is not much borrowing on commercial terms, and unlike states like Jamaica and some in Latin America, who borrow from international markets to finance their budget deficit, Guyana does not do that.

However, the President pointed out that Global demand will affect this country because if China is importing and growing as is the rest of the world, we would have greater demand for bauxite, forest and fishery products, sugar, rice and all other products, but Guyana is only a small part of global demand.

He added that to stimulate global demand there would be a need for the fiscal stimulus packages introduced by China and the U.S., the scale of which runs close to several trillion dollars.

“But we can spend a bit more here in Guyana to ensure, first of all that we keep people employed and that we spend in a labour intensive fashion, which I have given directions to my cabinet, so that people who may lose some of their jobs from shrinkage in production because of a reduction in global demand that they may find alternatives”, President Jagdeo stated.

He added that this is something that the Government can do and that is why the budget has a greater amount of spending but it is spending in traditional areas.

Turning again to the calls for reductions in the VAT tax, the President said that if one is to look at the framework, there is more being spent than what is collected as revenue so there is a fiscal deficit, adding that the fiscal deficit came about over many years, largely because of unsustainable debt and debt payments, which at one time took up 94% of the revenue.

“The reason we still have a fiscal deficit is that we have to spend more on education, spend more on health, on fixing the roads and the water supply and the electricity, spend on building bridges, etc, because they are vital to future economic prosperity in this country” the President explained.

He pointed out that if the leader of the opposition wants VAT to be reduced then the country would run a bigger fiscal deficit, because revenue would be reduced as well.

President Jagdeo further pointed out that if there is a bigger deficit then there would be inflation, deteriorating exchange rate, ballooning of the domestic debt, interest rate would have to be pushed up to counter any growth in exchange rate and in the long run it becomes counter-productive.

“And this is why I have argued that there is no talent in the debate; it’s done as though it is child’s play, the throwing out of ideas just like that without any attempt to analyse the impact on the macro variable or the development prospects of this country”, he said.

He also pointed to other contributions in the National Assembly, particularly where an AFC Member of Parliament stated that Guyana scored low marks on the Heritage Foundation, stating that this is because of Guyana’s labour market flexibility and because of the many laws protecting workers interest.

“So this MP ingenuously said you need to do more to protect workers because look at the low score that you got on the index, we got the low score because we are protecting workers, we have more laws, you get a low score if you have greater spending in the Government sectors, if you spend more on education and health care and these issues, you have a lower score on the index” the President stressed.

He further pointed out that countries like Haiti, that has a very small social programme, does not spend as much because of its fiscal position, and does not spend a lot in the areas that Guyana does; has a smaller size government so they get a higher score than this country receives, because more than 40% of the this country’s budget goes to the social sectors.