One of the best pieces of news coming out of the government came from the lips of the President last week at his Press Conference. He said that Guyana was going to be dealing with China with its eyes wide open.
It better had, because all roads under the Belt and Road Initiative lead to China, and therefore Guyana has to be alert to the implications of any deal it signs. The President should urge all his Ministers to keep their eyes open and not to defend the indefensible.
The Minister of Foreign Affairs, in his response to the Kaieteur News article on the Belt and Road Project, argued that the main causes of problematic projects is not the source of the funds but often the concept, design, poor planning, poor implementation and even outdated technology and over-ambition.
This was a very skilful, but not necessarily accurate defence of the need to borrow from China. The source of funds cannot be discounted as a contributory factor to project failures and indebtedness. The fact of the matter is that the debt problems of Malaysia, Indonesia, Pakistan, Sri Lanka, Tonga and Cambodia are directly attributable to borrowing from China under the Belt and Road Initiative.
The Minister of Foreign Affairs was the country’s Minister of Finance when Guyana’s debt skyrocketed during the 1980’s in the midst of the debt crisis. He would therefore be able to appreciate that the developing countries’ debt crises emerged because of the sources of their borrowed funds The oil crisis of the early and mid-1970’s had left the oil-producing nations flush with petro-dollars. They had little investment sources for these funds, and therefore invested them in the West, which in turn lent them to developing countries. It was therefore the flushness of funds in western banks which triggered the debt crisis.
The debt crisis of the 1980’s was a western creation. But it affected Third World countries’ debt with the non-western world.
In the case of Guyana, the inability to service the external debt created a range of problems which sent the economy into freefall. It is estimated that the productive sector was operating at around 60% of capacity, not because of an absence of markets, but because of the inability of producers to obtain inputs and spares, coupled with an erratic electricity supply.
The Minister of Foreign Affairs would also be aware of the profile of Guyana’s external debt when Guyana became ineligible for further borrowing from the international financial institutions. Half of the debt was multilateral. The source of the debt therefore cannot be discounted.
The debt crisis led to changes within international financial institutions. They were forced to become more prudent. They no longer lent with the same laxity as they did before. Projects were scrutinized for financial viability and their environmental impact. Project performance and transparency were watchwords when lending to developing countries.
China is not as rigorous with project assessment as the international financial institutions. China is more interested in market access. It is therefore willing to fast-track lending.
China’s objective is not necessarily to ensure that the project is a success for the borrower. China is not interested in generating local employment as was shown with the construction of the Marriott Hotel where mainly foreign labourers were used.
China is interested first in resources. They will lend to get leeway into the resources which they need for the growth of their manufacturing sector. This is why despite all the braggadocio of the APNU+AFC government, no ban has taken place on the export of logs. Second, China is interested in expanding its global reach by extending its new markets. Third, the Belt and Road Initiative helps China to export construction and labour.
There is therefore a big difference between borrowing from China and borrowing from other countries. The sources of the funds are important, because this has bearing on the safeguards which are usually employed, including safeguards against corruption.
China will be prepared to relax financial and environmental safeguards which ensure the proper use of funds. China’s interest is to lend and not to worry too much about the ends of the project. They leave you holding the debt.
The Baha Mar project in The Bahamas is an example of the dangers to be avoided when dealing with China. China’s EXIM bank poured US$2.45B into the project. The contractor itself invested US$150M. Eventually the project went bankrupt and that created shockwaves throughout the economy. It was sold to a Hong Kong investor who had to pump in another US$700M. In the meantime, some 2,000 employees lost their jobs in a small economy.
The argument that the sources of the funds are not the problem is therefore myopic. The problem is the source of the funds, because the debt trap often is as a result of an enthusiasm to lend without the requisite safeguards, and with the lender’s interests not being compatible with that of the borrower.
Guyana must not jump wildly into bed on the Belt and Road Initiative. It may end up in the wrong position.
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