Oct 19, 2020 News
– ex-Finance Minister, Winston Jordan cautions Govt., PSC
Kaieteur News – With billions of investment dollars being promised by high-ranking US officials, former Finance Minister, Winston Jordan, is cautioning both the new People’s Progressive Party/Civic (PPP/C) administration and the private sector to be wary when sourcing new avenues of international funding.
Jordan’s comments emerge mere days after head of the International Development Finance Corporation (IDFC), Adam Boehler, and his team comprising the IDFC, Department of Treasury, Export-Import Bank, Department of State, Department of Homeland Security and Department of National Security met with the Private Sector Commission (PSC), engaging in deep discussions that could see the US expanding investments in Guyana.
During a media briefing with the delegation, the PSC heads and other members of Guyana’s business community, Boehler had highlighted that the US is not only looking to invest in large projects but to also lend a hand to small and medium scale businesses.
According to Jordan, this is also coupled with the “sum of US$200 billion that was dangled to the country’s policymakers and private sector representatives.”
For a country like Guyana, he outlined, whose Gross Domestic Product (GDP) is a mere US$5.2 billion, the offer would be enough to “salivate” at the possibilities and opportunities such investments can present, should they come into fruition.
But notwithstanding this, Jordan warned: “A word of caution to the private sector and the policy makers: while we should not look a gift horse in the mouth, care and extreme caution should be exercised as you engage new sources of funding.” The former Finance Minister supported the PPP/C government’s attempt to widen the sources of financing for Guyana’s economic development, stating that: “In spite of the bounties that oil will bring, it is important for Guyana to explore all avenues for additional resources – especially concessional resources – in view of the huge deficits that exist in the country’s social, physical and economic infrastructure.”
He then went on to point out the APNU+AFC Coalition’s success in this regard including clearing hurdles for Guyana to gain membership of the Islamic Development Bank (IsDB) which added to Guyana’s existing relationships with other multilaterals such as the International Monetary Fund (IMF), The World Bank, the Inter-American Development Bank (IDB) and the Caribbean Development Bank (CDB).
Jordan noted, too, that Guyana’s traditional donors have been playing their role and pointed out that just before demitting office; discussions were advanced with the IDB for two loans, totalling US$51 million, to be used on COVID-related activities.
“Aside of its classification as ‘upper middle income’, based purely on per capita income,” he continued “Guyana needs highly concessional to near concessional resources to meet its burgeoning developmental needs. This brings us back to the ‘gifts’ being borne by the Americans.”
Delving further, the former Coalition Minister explained that PSC Chair, Nicholas Boyer was reported as saying that the US$200 billion would be in the form of loans at interest rates that are different to those available to local investors.
But such statements, he claimed, give the impression as though the local private sector is starved of access to foreign funding.
According to Jordan: “This would be far from reality. The truth is that for the most part, the private sector has, for various reasons, shown a disinterest in using the available funding of the private sector window of the multilateral financial institutions, of which Guyana is a member.”
Turning his attention to the IFDC itself, Jordan expressed several concerns regarding the financing process. According to him, the means by which financing is obtained from IDFC is “unclear” since it is stated on their website that the IDFC “complements, rather than competes, with private sector lenders and supports projects that have been unable to obtain sufficient support from private lenders”.
He explained that based on the nature of projects in Latin American, countries like Brazil, Colombia and El Salvador that are highlighted on its website, it appears as though the IDFC either provides financing to US companies, “which would then be used to undertake projects in developing countries; or, provides supplemental development financing to countries in cases where there is either a lack private sector capacity or inclination to provide financing.”
Further, Jordan stated that once approved for financing, the IDFC will make a project-by-project determination of loan amount, usually not more than 80% of the total cost of the project.
Notably, he stated that the IDFC classifies Guyana as an upper middle-income country, adding that this likely means that any financing provided would be on non-concessional terms characterised by high and potentially variable interest rates and relatively short repayment periods.
“It should also be noted that there is a preponderance of fees associated with financing obtained from the IDFC, which would result in elevated borrowing costs,” Jordan said.
A critical point, according to the former Finance Minister, was that the IDFC-led team indicated it was able to provide amounts to an astounding US$200 billion, or about 118 times Guyana’s debt stock at the end of 2019, and about 39 times the 2019 GDP of US$5.17 billion.
The substantial utilization of this financing envelope, the former Minister noted “will compromise the sustainability of Guyana’s debt.”
Given the foregoing, Jordon’s was keen to outline that the observations are neither “exhaustive nor meant to puncture the aura of excitement created”, rather, they emphasise the need for “prudence and probity” in the conduct of the country’s financial affairs.
“Both the Government and the private sector are advised to tread carefully,” he said.
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