I respond to the statement made by Pat Hardcastle, as quoted in the article, “Evaluation Team Impressed with Support for LCDS,” in the SN of September 13, 2010. According to that article, Mr. Hardcastle is reported to have said, “One of the things that we found is that everybody that we have met, without exception, has been supportive of the Low Carbon Development Strategy (LCDS).”
It might well be that Mr. Hardcastle was mis-quoted, or that he had not been fully briefed. Even so, I believe it important to point out that in a meeting with Dr. Davenport (a member of the Evaluation Team) on Friday, September 3, 2010, at the Institute of Development Studies, University of Guyana (UG), some serious reservations were expressed about the LCDS. Unfortunately, Mr. Hardcastle was unable to attend that meeting.
Here, with some additional commentary, are the reservations about the LCDS that I (and other Institute colleagues) mentioned at the meeting with Dr. Davenport:
1. Poverty has much to do with uncertainty and the inability of the poor to deal with the risks and contingencies that confront them. The Low Carbon Strategy (LCS) cannot therefore claim to be a development strategy if it is as engulfed in uncertainty and risks as it seems to be. Actually, the LCDS document itself notes a number of these risks.
For one thing, how will the LCS be financed? If from the ‘Carbon Funds,’ is there is schedule for the disbursement of these funds; and is the disbursement contingent on meeting difficult conditions?
Or are the funds to be garnered from an incipient carbon market; and if so, then do we know what exactly we are selling, at what price, and over what time period; and is the demand for our carbon services rising or falling, given the clear preference in industrialised countries for technology-based solutions to climate change?
Financing apart, are the policy makers certain that the projects identified under the LCDS are going to be successful? Well, one may argue, capital projects are all risky – but who will bear the burden of any failure of these projects? Will the poor be again called upon to bear those risks, by having to live in poverty for longer, because of lost opportunities?
So my first reservation, mentioned also in that meeting with Dr. Davenport, is that a development strategy cannot build up the expectations and hopes of the poor by making promises that depend on a ‘spontaneous emergence of answers and solutions’ to the elements of risk and uncertainty mentioned above. Such a spontaneous emergence can indeed occur, but only perhaps as sort of ‘immaculate conception;’ and let us be clear on this: Development does not, should not, cannot and indeed must not, rely on immaculate conceptions.
2. While I did not raise this at the meeting, one should note parenthetically that it cannot be right to be promising billions to Amerindian Guyanese from ‘Carbon Fund revenues,’ when these revenues are still to be mobilized. If we do so, then the LCS is not much different from the so-called Nigerian email scams: Mobilizing the Carbon Funds, and then accessing those funds if they did become available, are ‘low probability’ events; but by making the promised grants sufficiently large, we can yet find that people would actually fall for the scam (because the expected benefits would actually be positive)!
3. A second concern is that development is not about projects. Stripped down, the LCS is fundamentally about getting funds to finance projects, albeit projects that will take us down a low carbon economic path. Looked at in this way, two major threats to development in the LCS were mentioned in the meeting with Dr. Davenport: first, that most of the funds, if ever realised, would principally be available to government for its use in financing projects; and second that the expected size of just one component of the funds – the Norwegian funds – is going to be a huge part of our GDP, again, if ever it materializes.
Fears of corruption and elite capture of the carbon fund resources aside, the first concern has to do with the real possibility of private sector crowding out by the expansion of government expenditure that would attend any carbon-fund financed projects under the LCS.
Yes, there will be a GRIF, but the Ministry of Finance will be ‘responsible for its performance,’ and furthermore, the potential projects are naturally loaded in favour of public sector undertakings – from infrastructure to the nurturing and facilitation of private sector investment.
Additionally, there is the possibility of ‘Dutch Disease’ effects due to the sheer magnitude of the expected Norwegian funds. If we considered what has happened since the spigot of foreign assistance was opened after the 1989 economic reforms, Guyana would already seem to have contracted Dutch Disease: labour has shifted into the ‘projects’ sector, with every other person being either a consultant, a project coordinator or an accountant; much of our traditional export sector has gone into serious decline; and our non-traded goods sector is booming – with taxis, private schools and even universities, new houses and other buildings (including shopping malls!), cake decorators and hair-dressing salons, and so much more, now adding charm to our economic landscape.
As pointed out in an excellent article on the subject, “Too Much Wealth Managed Unwisely” (Finance & Development, March 2003, Vol. 40, No. 1, http://www.imf.org/external/pubs/ft/fandd/2003/03/ebra.htm), Dutch Disease is a particularly undesirable phenomenon if the capital inflows that cause it, are temporary.
I am willing to concede that the Carbon Fund might potentially be an important source of funds, but the issue is whether the fund will ever become an enduring reality; and more than that, whether we can afford to pin our development goals on such an uncertain prospect.
4. Finally, the particular touting of the LC(D?)S sounds a lot like the noise that surrounded the new Skeldon factory, when it was being presented as the one thing that would secure an economic turn-around for Guyana: we now seem to be once again putting most of our ‘developmental’ eggs in one (low-carbon) basket, so to speak.
A more appropriate development strategy would recognise that uncertainty is a particularly bothersome bane for the poor; and that a more diversified set of strategies would be more effective at reducing uncertainty than a one-dimensional one that simply emphasises the achievement of a low-carbon economic state.
While I might have said controversial things in this letter, controversy was not my objective. I only wanted to respond to the statement attributed to Mr. Hardcastle. That said, it would be good to get some responses and assurances from the relevant policy makers about the LCDS.
Thomas B. Singh
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