Category: International

Posted on

Response to a Crises

Introduction
Today’s column looks at some of the ironies and contradictions in the response to what started as a domestic crisis in the mortgage sector in the US and the prospects for the developing countries arising out of the Obama victory. The effect of the crisis has been wide, deep and pervasive and demanded action.

On November 15, 2008, the Group of Twenty (G20) held an initial meeting in Washington to try and arrive at a common position and to seek solutions to the daunting challenges facing the world as a result of the cataclysmic turmoil that has shaken the belief in the way the capitalist system works. The meeting had been called by US President George W Bush, once considered the most powerful man in the world but whose performance during the entire period has been embarrassingly unconvincing and whose public pronouncements almost invariably coincided with further deterioration of the stock market. Bush’s obvious discomfort and lack of understanding of the problem did not instil any confidence in the US or world markets and his advisers thankfully and sensibly had stopped his effete television appearances which had been a regular occurrence when the crisis unfolded in September.

By contrast, Gordon Brown, the embattled British Prime Minister heading for defeat at the next UK elections, has come out − at the international level at least − smelling like a rose for his decisive response to the situation. On October 8 his government unveiled its plan which saw the first steps in an unprecedented scale of government intervention. The British banks received an injection of funds and government guarantees that are tantamount to nationalization, but it was this action that may have averted at least temporarily, financial Armageddon worldwide. The Brown plan seemed to be the blueprint for other countries which quickly followed suit in recognition of the extreme gravity of the world economic crisis. At the Washington summit, it was evident that everyone realised that coordinated effort was needed and that these economic powerhouses, if they could still be called that, had to work together to reform the financial system which had become inextricably intertwined as a result of globalisation.

Revival of socialism
But despite the critical and unusual steps that have been taken in various countries to stabilise the situation and provide support to the global economy, much more is needed. The financial markets are in a crisis of confidence and unless some assurance is received that there are matching reforms in addition to the support measures, the wild swings in the stock markets of the world will continue. The G20 leaders in their statement issued after their meeting acknowledged that reform of the financial system is a priority and must be so far reaching as to insulate the world financial system from a recurrence of these calamitous proportions in future. This is no easy task since the coordinated response that these reforms require will necessitate subjugation of self-interest for the common international good. Many critics will decry this as the revival of socialism but that is what seems to be inevitable if the world as we know it is to survive and hopefully achieve some semblance of prosperity going forward.

The alternative of retaining capitalism in the mould of Thatcherite-Reaganite economics in which the market is supreme, is too frightening to consider. Even the right-wing voices in the Republican Party in the US have been muted, perhaps an admission that those who want to hold on to outdated philosophies and beliefs do not truly appreciate the magnitude of what has occurred. One recalls that only days before the implosion in the US market, defeated Republican candidate John McCain had said that the US economy was “fundamentally strong.” Cruelly for him, the speed of the unravelling was as dramatic as it was mind boggling.

The collapse of three of the top financial houses in the US that were the public face of capitalism, adjustments in the European Union that could cost hundreds of billions of euros, the easing of credit arrangements in China all demonstrate a realisation that it is no longer business as usual. Indeed there probably have been more pro-socialism articles published within the past three months than in the past three years. Seventy-five years after his landmark work, renowned economist John Maynard Keynes must be gratified that the policies he recommended to avoid a slump are now accepted wholesale for introduction at the international level.

Questioning the US bail-out plan
Not lost in all this is the irony of the headlining role US Treasury Secretary Henry Paulson and his 35-year-old assistant Neel Kashkari have been playing in crafting the US rescue plan.

Both men are alumni of Goldman Sachs, another one of those once highly regarded US financial institutions that benefited tremendously from the financial engineering that has dominated and perhaps bears responsibility for the crisis, and which itself is now under threat. Paulson is former chairman and Kashkari is his protégé and more irony here, has immigrant roots in one of the emerging world economic powers, India. The latter has significant responsibility for oversight of the much publicized US$700 billion bailout that was supposed to be the silver bullet solution but which has not had even close to the desired effect. With President-elect Obama having taken effective charge of the public debate on crisis resolution and the Bush administration coming to an end in about seven weeks’ time, it is hard to see how much these men can achieve.

Indeed even before its implementation, the US bailout is now being questioned as the typical American approach to a crisis: throw tons of money at it and it will go away. This emphasises the stark reality that traditional prescriptions will no longer be effective and that while the preservation of market principles may be a laudable objective, French President Nicolas “L’Americain” Sarkozy’s assertion that laissez-faire is dead, does not represent irrational pessimism at all. What is clearly evident is that the days of reckless abandon in financial and economic dealings must come to an end and that the requirement for asset values to be based on realistic underlying worth can no longer be panned as antediluvian esoterica.

Obama for change
Obama started his incredible campaign for the presidency of the US perhaps to the left of the liberal wing of the Democratic Party, but he is pragmatic and was quite willing to shift positions in response to changed circumstances. So far he has been concentrating on putting his team together rather than pre-empting and second-guessing the incumbent. He campaigned on a slogan of ‘Change’ but the striking feature of his economic team has been described by the Economist as “centrism,” comprising real economists, many of whom served the Bill Clinton presidency of 1992-2000, another irony of sorts. The team is studded with economics PhDs, such as Larry Summers, Tim Geithner and Peter Orszag, all of whom would be top of any class. Thankfully, Obama is an intellectual heavyweight in his own right and he will certainly be able to arbitrate any competing views these stars may offer.

What will have to wait for clarification is the role Obama and his team will play in helping the developing countries weather the international financial storm that will still be raging on Inauguration Day on January 20, 2009. For decades the countries of the developing world have been led, dragged, coaxed and cajoled by the economic mantra of the IMF and the World Bank. The irony is that following the adjustments and rescue packages proposed by the G20 countries, the economies of those countries will have more direct government intervention than all the developing countries combined.

We will have to wait too, to see whether the Obama team will seek to bring about any change to the free-market capitalism promoted by the IMF and World Bank, who for decades have been forcing countries, in exchange for aid of any kind and value, to liberalise trade barriers, deregulate financial and labour markets, privatize national industries, abolish subsidies, and reduce social and economic spending.

That would be more than a vindication for all the support and good wishes Obama receives from the people of the developing world.

Posted on

Curbing corruption: The Corruption Perception Index – conclusion

Introduction
Today we conclude this three-part article arising out of the publication of the 2008 Corruption Perception Index of Transparency International which ranked Guyana at a lowly 126 out of a total of 180 countries surveyed, with a score of 2.6 out of 10. No one can say whether the ranking is correct in the strict sense. That would require knowledge of the other countries surveyed or assume an unerring degree of consistency in the process across all of them. What we can say, however, is that the methodology and sources meet the reliability and credibility test, and any government serious about the image of the country ought to take the perception very seriously.

No one needs to be convinced that corruption and its sidekick, bad governance, have developed in Guyana into a culture of impunity fuelled by an unacceptable level of public tolerance. Inconsistent with its boasts of achievements in rooting out corruption, the government fiercely resists any demand for public scrutiny and readily attacks anyone who questions its decisions and actions. Corruption finds shelter in opacity and over- centralisation of power, non-transparency in major financial dealings and contracts, absence of accountability, and excessive red tape in government departments − conditions that exist here.

Many-headed hydra
There is no longer any question whether there is corruption, but only the extent and cost. One columnist described the situation as a “kleptocracy,” a term applied to “a government that extends the personal wealth and political power of government officials and the ruling class at the expense of the population.” Corruption takes many forms and the cases are legion. It can be the straight bribing of politicians and officials to the extension of concessions, contracts and benefits to those in power. It can take the form of scholarships and plum jobs for relatives of those in power, advisory positions for party officials and all kinds of personal benefits for the politicians. All of these have a real cost to the economy and explain why despite all the tax write-offs and excessive taxation on the backs of the poor our per capita GDP is a mere US$1,000.

Compare Guyana with the African island of Mauritius, which at its independence in 1968 was more dependent on sugar than Guyana was. Its per capita GDP was a mere US$200 and its future gloomy at best. Forty years later, despite the absence of oil or mineral resources and having to import most of its food and energy, the country has a diversified economy and enjoys a per capita GDP of US$7,000. It was rated at 41 on the TI Index and is considered the top African country in the Doing Business Series of the World Bank.

Cost and cancer-effect
Corruption costs the treasury, but also the ordinary person and as one friend wrote to me in an e-mail, “Corruption is not just a morality abstraction. It can and does indiscriminately hurt persons, groups, organisations, communities and nations in concrete and practical terms. For example, the untutored motorist who has corruptly paid for their driver’s licence ‘under the table’ is really a lethal weapon that may be heading your way. And every time you pay for a public service which is nominally available without cost, you obviously and unnecessarily diminish your disposable income and your child may have to do, at least temporarily, without a school book.”

Parts one and two of this article showed that instead of the government taking action to curb corruption, it has dismantled, emasculated and politicised key institutions with the result that corruption goes undetected and unpunished. The question is why is there an absence of outrage at the failure of the government to deal with corruption, and whether it has now gone out of control?

It may be that we have been so accustomed to corruption that it is now part of one’s existence, part of doing business in Guyana. It is also cancerous as businesses find it necessary to adopt corrupt practices to compete. It may also be that corruption takes so many forms that it may not be immediately seen for what it is. The country failed to see the creation of Pradoville, the Cabinet Outreach to get Amerindian votes for the 2006 elections and the virtual abolition of the Office of the Ombudsman and the Integrity Commission either as themselves corrupt practices or the facilitators of corruption. Not even the emasculation of the Audit Office, the abuse of the Lotto and NICIL funds and the misuse of state funds for personal benefits arouse any attention these days.

Tackling the problem
For there to be any real war on corruption requires political will and personal and institutional commitment, all of which seem in very short supply. Threats by the President to deal with corruption and to bring the perpetrators to justice are almost a monthly joke. The PPP/C came to power with a pledge to deal with corruption and its own manifestos may offer some solutions. Here are some of its pledges:

1.  Its 1997 Manifesto pledged to have a Freedom of Information Bill approved in the 1997 Parliament.

2.  In 2006 it promised, among other things, to:

i)  introduce fiduciary oversight reforms that will give greater oversight responsibilities to parliament to monitor executive programmes;

ii)  to reform and strengthen the Integrity Commission to carry out its functions of holding public officers to account;

iii)   strengthen the Audit Office; and

iv)  work with Parliament to establish the Procurement Commission.

As Business Page has shown over the past weeks, the government has not only failed to deliver but has gone into reverse, even as its political control has increased.

The parliamentary opposition chairs the Public Accounts Committee but the PNCR which holds the chairmanship seems to have run out of ideas, energy and capacity to make a real impact. The AFC failed to win government support for a Freedom of Information Bill in Parliament and it and the PNCR have not been effective enough in asking searching questions in the National Assembly that would help to expose and reduce the level of corruption.

That leaves us with ‘civil society,’ which however defined, has shown little or no interest in stemming corruption. For all its feigned complaints about corruption, the private sector is willing to ask for and accept concessions which it knows smack of corruption and which compromise their independence. Beneficiaries themselves of goodies from the government, they are recycled into various forms and on successive days they are members of this or that commission or body, then the next they are in religion and the next, part of the EPA coalition. As a result civil society is so weak that even when it extracts a commitment from the government as in the aftermath of the Lusignan Massacre, it could and did nothing when the President broke his promise to have the outstanding constitutional commissions set up by May, 2008.

In the course of this article I have called on key members of civil society to play their part in cleaning up corruption in their own areas. Significantly this included the Integrity Commission that has been disgraced as much by the politicians as by the Commissioners. A similar call was made to the Gecom commissioners but that too has been ignored. Hopes then are receding and the fear is that things will get even worse.

Conclusion
This may be a last chance for the so-called ‘silent majority’ to find its voice and get involved in the fight against this cancer. Entering the public debate, pushing for resuscitation of the powers of the Office of the Ombudsman, mobilising public support against corruption, demanding accountability for public funds and lodging complaints when approached for bribes are all actions that the lowliest among us can take, so the excuses that we cannot change the situation are just that: a copout. Advocacy in the form of sustained pressure from civic groups and private sector organisations for fundamental reform of how government runs its business can be effective and save the country billions. For starters I would support the recommendation of the friend from whose e-mail I quoted above that we have a country chapter of Transparency International appropriately structured and populated. Any interest anyone?

Posted on

Curbing Corruption – The Corruption Perception Index – part 2

Introduction
In introducing this subject last week Business Page sought to explain how Transparency International, the international non-governmental organization, compiles its annual Corruption Perception Index. For the benefit of readers who may have missed it, the 2008 Index ranks Guyana at a lowly 126 out of a total of 180 countries surveyed, with a score of 2.6 out of 10. As we indicated last week, in this second part, we turn our attention to why and how the attitude of the Government reflected by the cavalier statement of Dr. Luncheon that the Government would work in the same mode not only contributes to the perception of corruption but quite likely to actual corruption in Guyana.

For the purpose of this article we will look at the performance of the relevant political structure, the propriety, accountability and transparency of public spending, procurement, executive behaviour, the capacity and independence of the oversight mechanisms established to identify, punish and prevent corruption such as the Audit Office, the Public Accounts Committee and the Integrity Commission as well as the role and contribution of civil society. What we see is a depressing tale of resigned powerlessness and apathy to corruption and impropriety from top to bottom – from the way key provisions of the Constitution continue to be ignored with impunity at the level of the presidency, the routine demands for bribes and kickbacks by police and customs officials whose boss in defeat and frustration appealed to the public not to give his staff any more bribes, to the minibus driver who must perforce give a $1,000 to the traffic cop.

Party accountability
Let us look first at our political arrangements. Governments come out of political parties but these must be the only members’ organisations where there is no financial accountability and where members are not given access to even basic financial information, let alone formal reports. There is a curious fascination about the sources of their income, the identity of the select few who control their cash and how the income and expenditure are accounted for. So embedded is this absence of controls and financial accountability and so normal is it that parties behave as though accountability does not exist and that there is no expectation among members for any form of reporting. This can allow the financing of political parties by drug dealers and tax cheats to go unnoticed and the buying of favours for the donors, to be returned in one form or another including “immunity” in their tax affairs. This danger is particularly evident at general elections time when huge funds seem to come from nowhere while our Elections Commissioners seem unconcerned that the relevant law is out-of-date and used as an excuse for totally ignoring it. It is unlikely that any of the commissioners would dare to suggest that the law be updated and enforced. The possibilities for financial lawlessness and what the PPP/Civic 1992 Manifesto referred to as “dishonest electoral practices” and corruption are therefore endless. To call for proper legislation would be an invaluable national service which a GECOM Commissioner can render this country.

It should not be a surprise therefore that the attitude evident in the administration of the party finances is often carried over into public office. But even if we were to consider political parties outside of the pale of accountability – which they ought not to be – what about the rest of the country including most importantly those with the power to raise taxes from the people and the duty to spend it in a fiscally responsible and financially transparent manner? That duty includes waging “war against corruption which has seeped into every corner of our national life and is destroying the morals and morale not only of the corrupt but of all our people” – to use the words of the PPP/Civic 1992 Manifesto. That war requires an adequate institutional framework with reasonably capable and honest persons operating a system that has sufficient checks and balances including strong oversight and regulatory bodies. Absent these, the door is wide open for abuse and corruption.

Promises and delivery
It seemed for a while that these minimum requirements were recognised and that serious steps would be taken to address the problems. The 1992 Manifesto provided an excellent framework and statement of commitment. These were followed by changes to the national Constitution and some new laws. The changes have turned out to be more cosmetic than real and many consider that the cost and impact of corruption now is higher than it was fifteen years ago. Year after year, the Constitutional requirement that all public moneys be paid into the Consolidated Fund has been ignored in respect of the Lotto Funds which seem to be available for utilization at the President’s pleasure, since he has no such authority in law. Instead of taking remedial action, the Government has found another avenue for similar non-accounting and questionable spending. And that is in respect of the substantial sums collected and spent by the Privatisation Unit from privatisation and rentals of public property.

Recognising that the Government over a sustained period has been the largest procurer of goods and services, and that any control of corruption requires a strict regime of oversight of the procedures to ensure that procurement is done in a “fair, equitable, transparent, competitive and cost effective manner”, the revised Constitution makes provision for an independent, impartial Public Procurement Commission to be appointed by the President. Not only has this not been done but the Parliament has passed not one but two Procurement Acts placing procurement under a political head and rendering the Commission effectively redundant.

Integrity
Like with procurement so with integrity. Two Acts have failed to do the trick (no pun intended) and from its outset the Integrity Commission has been a failure if not a farce. We recall the wife of a later discredited Minister being appointed a commissioner by the Government but even more ludicrous the information is that the Chairman or ex-Chairman Bishop Randolph George resigned but that his resignation was not accepted by the President. It seems that the Commission is non-functional or at best dysfunctional with a membership that inspires no confidence and that seems to have no accountability other than to the President who has supervisory authority over the Commission. Indeed the Act allows the President to step in and request information from declarants and to publish their names and to hold formal enquiries. Given the scope of this legislation, covering as it does members of the National Assembly, the judiciary, public officers, local government officers, presidential advisors etc., it is incredible that there is no report of the Commission or the President publishing the fact that a person has failed to file his declaration under the Act, or of the Commission having held, since its establishment a single inquiry into any person. And is it a “nancy story” that no one has ever been charged with the new offence created by the Act of failing to account for their assets?

It would be an act of integrity if Bishop George, a respected man of the cloth and one who contributed to the return to democratic elections, would tell the nation what really is going on. Incredibly, calls to the Commission’s office are referred to the Office of the President!

Financial oversight
Then there is the Public Accounts Committee (PAC) of the National Assembly with the principal task of doing follow-up work on the report of the Audit Office. A leading member of that Committee has lamented the limited powers of the PAC but the public can legitimately ask whether that body does enough not only within its limited authority but whether it is sufficiently aggressive in pursuing its mandate. The combination of an Audit Office with the range of weaknesses identified above and a PAC without the expertise or the power to compensate for those weaknesses increases the risk of corruption succeeding without detection.

The two major executing entities for accounting for and overseeing public expenditure are the Audit Office and the Accountant General’s Department. The weaknesses in these outfits were long recognized but sixteen years after the Government pledged to the nation and the voters to strengthen the Audit Office and the Accountant General’s Department, these remain as starved of resources as they ever were while yet being called upon to manage and supervise vastly larger sums of money. After all these years, the Accountant General’s Department cannot control bank accounts of billions of dollars and the financial statements that it submits for audits are incomplete and in many cases incorrect.

Business Page of August 31 and September 7, 2008 highlighted some of the glaring weaknesses in the Audit Office including being understaffed by persons who are under-qualified, with serious problems of professional independence, glaring conflicts of interest and consistent failure to meet its constitutional mandate for reporting to the nation within a defined timeframe. Its 2006 report speaks as much about its own inadequacies as it does about the public finances of the country. Years after, it is still to publish its report on the money that was received and disbursed on the 2005 Flood and there are concerns that the same is happening with the 2006 Cricket World Cup accounting. If the Audit Office is so handicapped that it is several years in arrears in respect of several of its statutory obligations, when will it detect any occurrences of fraud and corruption? And if it has to spend its time on what in a normal situation would be regarded as basic such as bank reconciliations, it will not have time even if it had the other resources to deal with the serious control issues. The Office seems to lack the competence, independence or the confidence to scent corruption and there has been not a single case over the past several years of the Audit Office pursuing any incident of corruption of its own initiative.

Custom
There is such helplessness over corruption in the Customs and Trade Administration that its head is now appealing to the public to help in curbing corruption there. That statement is an indictment of the entire GRA and directly Colonel Ramsarup whose appointment was considered by many as usurpation of the role of the GRA Board by the President. The public waits with bated breath to see what action the Government will take to deal with the Department.

It would be unfair to hold public servants entirely responsible as the failures of their political bosses are in many cases worse. Why is the Minister of Finance not held accountable when he consistently fails to present to the National Assembly his half-year report within the sixty days deadline? The President is allowed to handle hundreds of millions of dollars without any authority whatsoever and creates for himself the supervisory responsibility over persons accountable only to him. The bloating of the number of ministries and departments, appointments and salaries outside the public service rules and an explosion of positions in the Office of the President create huge problems of adequate supervision and opportunities for corruption.

Large part of the problem
Add to all of these major institutional weaknesses, the Government’s willingness to pass legislation tailor-made for the President’s friend and to facilitate plea bargaining by its supporters, the belief that the Government is not at all serious about corruption gains credibility and sympathy. On the other hand the Government has strongly resisted calls for a Freedom of Information Act which it promised in its 1997 Manifesto and arrogates unto itself complete ownership and control of the state media and resources which it had promised to open. Not only has the Government shown a serious breach of faith but this complete control over activities and information on their conduct has dangerous implications for corruption since any government would be reluctant to embarrass itself over any corruption involving those near and dear to its political heart.

The problem is that by his style and obsession with micro-management, everything including allegations of corruption, the latest example being Fidelity/GRA and wastage (the Bridge) has to wait on the President. The trouble for us here is as the evidence shows the President is a large part of the problem.

Next week we will look for some solutions.

Posted on

Curbing Corruption – The Corruption Perception Index

Introduction
Not unexpectedly, the Government has taken issue with the ranking accorded Guyana in the Transparency International (TI) Index for 2008 announced late last month. Of a total of 180 countries surveyed, Guyana was ranked 126 with a score of 2.6 out of 10, the worst score of all the countries in the English-speaking Caribbean. In describing as flawed the methodology through which the organisation comes up with its information, Cabinet spokesman Dr. Roger Luncheon gives the unmistakable impression that he may not have adequately informed himself of the extensive processes employed by TI in the compilation of the Index. Dr. Luncheon offered nothing more for his conclusion than that the report could be the product of the interviewees as “persons of an anti-government stance or who are not employed by government”.

One may regard this as suggesting that the persons employed by the Government including those who run the drivers’ licence process, the ubiquitous traffic cop or the incorrigible customs officer as the paragons of honesty, defenders of the moral soul and supporters of the government, a view that is unlikely to be shared by an overwhelming majority of Guyanese. In fact the very definition of corruption used in the TI and other international indices is an assessment of the persons “employed by the government”, including all its political appointees – high, low and in-between. Effectively dismissing the report and all those who share its conclusions in varying degrees, Dr. Luncheon complacently noted that Government continues its work in the same mode. That attitude of “we don’t care” perhaps explains why Guyana has actually slipped three places over the previous year and why, despite the country being the most heavily taxed in the region, there is not more to show for those taxes.

Definition
The corruption index measures the perceived levels of corruption among public officials and politicians based on different expert and business surveys by responsible and well-placed organisations. That system would not allow and would quickly eliminate the Jean-Louis type who according to a letter in Stabroek News of Thursday October 9, obtained his information from an “obvious lady of the night”. A columnist is not allowed to speculate on the basis for the conclusion about the lady.

The rest of this and next week’s column will explain how the Index is constructed and why and how the attitude of the Government reflected by the cavalier attitude of Dr. Luncheon not only contributes to the perception of corruption but quite likely to actual corruption in Guyana. Those persons who are perceived as engaged in corruption would no doubt find comfort in Dr. Luncheon’s comments as an endorsement of their conduct and an invitation to continue their unacceptable behaviour. We will look at the performance of the relevant political structure, the propriety, accountability and transparency of public spending, procurement, executive behaviour, the capacity and independence of the oversight mechanisms established to identify, punish and prevent corruption such as the Audit Office, the Public Accounts Committee as well as the contribution of civil society. Let us briefly look at the organisation itself.

The organisation
TI is a non-partisan, non-governmental organisation based in Germany. It has chapters in some 100 hundred countries but it does not undertake investigations on single cases of corruption or expose individual cases. It is interesting to note that efforts to set up a group in Guyana were unsuccessful and met with a resigned apathy that nothing will change – so much for the vaunted civil society. TI is financed from private sources and by international and regional institutions. It is best known for the CPI but it also publishes an annual Global Corruption Report, a Global Corruption Barometer and a Bribe Payers Index.

TI has objectives that should be shared by any Government committed to transparency and accountability including:

•  Improving access to and the disclosure of public information,

• Enabling citizens, legislatures, journalists and investigators to ‘follow the money’;

• Cleaning up public procurement and sanctioning violators,

• Maximising development resources and ensuring better public services;

• Strengthening institutions of oversight and engaging civil society,

• Enabling parliament, auditors and civil society to demand accountability;

• Harmonising donor activity to prevent abuse.

Despite its recent origin – about fifteen years – TI is credited for its contribution in putting the topic of corruption on the world’s agenda. International Institutions such as the World Bank and the International Monetary Fund now view corruption as one of the main obstacles for development, whereas prior to the 1990s this topic was not broadly discussed. TI also played a vital role in the introduction of the United Nations Convention against Corruption and the OECD Anti-Bribery Convention.

The Index
The Index is not compiled by some individual or group dropping into the country and speaking with a few disgruntled individuals and feeding that information into some computer that has a bias against Guyana.

Nor does the report measure the extent of corruption among the population as a whole. As the website of TI pointedly notes while the Index identifies Somalia at the very bottom of the ladder in 2008, that does not mean that Somalia is the ‘world’s most corrupt country’ or that Somalians are the ‘most corrupt people’. All it takes for a country to be very corrupt is a few powerful politicians and officials perpetrating corruption on the rest of the population. But that is small comfort to Guyanese who are mocked by their Caribbean brethren as the most corrupt people in the Commonwealth Caribbean.

All sources measure the overall extent of corruption (frequency and/or size of bribes) in the public and political sectors. Evaluation of the extent of corruption in countries is done by country experts, non resident and residents. In the CPI 2008, these were: Asian Development Bank, African Development Bank, Bertelsmann Transformation Index, Country Policy and Institutional Assessment (CPIA), Economist Intelligence Unit, Freedom House, Global Insight and Merchant International Group. Additional sources are resident business leaders evaluating their own country. The exact definition of “corruption” may vary but they all agree touch directly or indirectly on the misuse of public power for private benefit, for example bribing of public officials, kickbacks in public procurement, or embezzlement of public funds while some including the Asian Development Bank, the CPIA and the World Bank ask for ineffective audits, conflicts of interest, policies being biased towards narrow interests, policies distorted by corruption, and public resources diverted to private gain.

To be assessed and included in the Index required that a country have at least three surveys and assessments. Indonesia and India, now among the fastest growing countries in the world, had the largest number with ten while a small number had just three. It is tempting to state that Guyana’s low rating results from having only four surveys and assessments but that is also true of all the CARICOM countries which received much more favourable ratings, and of scores of other countries some of which received lower and others higher ratings. St. Lucia, St. Vincent and Dominica rated 21 and 28 and 33 respectively had three such surveys and assessments while Barbados rated 22 had four, Suriname and Trinidad and Tobago both rated 72 had four each and Jamaica rated 96 had six. While the CPI has been tested and found by both scholars and analysts as a reliable measurement tool of perceptions of corruption, that reliability differs across countries. The higher the number of sources and smaller the differences in the evaluations provided by the sources, the greater the reliability in terms of the countries’ score and ranking.

Perception and reality
It also means that if all the surveys and assessments were conducted using the same interviewees, errors can indeed creep in and no doubt some of that does take place. But that is also true of the other countries in the Caribbean some of which are infinitely smaller than Guyana. In any case perception does matter and as the cliché goes, perception becomes reality. For the Guyanese that perception is reinforced when it supports empirical evidence and reckless disregard by those in authority.

While investors would include a country assessment in making their investment decisions, that assessment includes a strategy for dealing with public officials who have a reputation – deserved or not – as being corrupt. Careful investors including those who are bound by home country laws on bribes paid to officials abroad are usually reluctant to become involved in countries perceived as corrupt. We lose those investments to start with. For the determined who consider Guyana as a destination anyway, a cost for corruption including bribes and kickbacks is factored in which can result in the investment also being ruled out.

At a practical level, corruption has a direct cost. Some commentators estimate that procurement costs may be higher than they should be in the range of 10% to 20% as bids are inflated to take account of bribes and contributions to political causes. Where the corruption takes place in the revenue collecting agencies the amount of tax lost is absolute and direct so that those who bring in suitcases of commercial material paying not to the state but to corrupt customs officers, the effect is direct and total. Then there is the metaphysical and what corruption does to the soul of the nation and the impact on the morality of the people but that is perhaps outside the scope of this Page.

To be continued

Posted on

Died on a Monday, exhumed on a Wednesday and born on a Friday: The rescue of a rescue package

It takes going back to the childhood nursery rhyme to capture the events of the past week in the United States of America. It was a week that began with Congress voting down a US$700B rescue package on the first working day of the week followed swiftly by the largest one day stock market decline (in points term but not in percentage terms), a high level, high voltage CPR carried out by the United States Senate on Wednesday and a volte-face by Congress two days later. And this is no hyperbole – no less than the US Chamber of Commerce, which represents business leaders, said: “With the American economy on life support, Congress took the necessary step to stop the bleeding.”

Even the lame-duck President George Bush took time off from his laid-back schedule, appealed to the American people who by an overwhelming majority think he is doing a bad job but who used all the powers of the “most powerful man on the planet” to sway the votes of Congress that a few days earlier had voted on the basis of instructions from back home.  Conventional wisdom after all was that it was mainly Wall Street’s greed that causes the problem in the first place so why should they be bailed out. By the end of the week however, no longer was the sky falling down considered the mere fantasy of Chicken Licken; everyone suddenly realized that things were worse than predicted and getting worse. In fact President Bush’s description that the situation was extraordinary was considered an understatement as credit dried up, banks balked at lending to each other and the job numbers nose-dived. Timing is everything and the coincidental release of employment data showing that some 159,000 jobs were lost in September, the worst in five years, was enough to make even a Congressman/woman ignore the advice of their constituents and to change their minds. For them just getting through 2008 without any further shocks would be not only a release but an achievement.

Poisoned chalice
The reversal of 58 no votes on Monday prodded by the Senate’s overwhelming support for a modified package was enough to see the bill’s passage in the Congress by a comfortable margin of 263-171.

Bush did not hesitate and within two hours he had put his signature on the largest financial rescue package since the Great Depression some eighty years ago. Welcomed by politicians including the two Presidential contenders vying for the most poisoned chalice in the world, the law failed to impress the US stock market which ended down 157 points after being up by more than 300 points before the voting began,. At 10325.38, the decline capped the worst week for the Dow Jones Industrial Average in more than six years, and left the market trading where it was nearly three years ago.

Notwithstanding these realities some commentators actually wondered aloud whether the passage marked the best of Washington – bipartisan agreement made in the interest of the country rather than in the interest of the voters back home. In fact the bill would probably not have passed without some genuine improvements such as a 150% increase in the guaranteed amount of bank deposit from $100,000 to $250,000 per depositor. The bill which grew from a three page document by Treasury Secretary Henry Paulson to some 450 pages also includes a tax provision, which will shield more than 20 million middle-income households from the alternative minimum tax.

But keeping with Washington’s tradition of pork-barrel politics, support was also bought at a heavy price. The sweeteners will amount to some US$150 B and include a 39 cent tax break for an Oregon company that makes children’s wooden arrows, tax breaks for commuting cyclists and provisions to help film and television production companies as well as renewable energy firms. Of course these will simply increase the huge deficit and debt of the US government. Bush seems willing to pass that problem to the next administration which will be headed by someone whose knowledge of economic matters is at best rudimentary. To meet one of Barack Obama’s conditions for support is the hugely popular limit on pay to senior banking executives.

Profit or loss
The rescue can result in several financial institutions making profits on the toxic loans they off-load under the bill if the price they receive is higher than the book value of the loan. In any case having liquidated those loans they can now switch the funds to other income earning loans and investments, resulting in higher profits. There is doubt in some circles as to how much the rescue will cost, if it will cost at all. Some see the government as actually making a profit on the loans − depending on the price at which the mortgages are taken over and the influence of politics on how strictly repayment conditions are enforced. There is also some doubt on whether the real outlay is the $700B we have been hearing about. The treasury has admitted to some arbitrariness in the figure of $700B while the respected Forbes magazine has quoted a treasury spokeswoman saying that it was not based on any particular data point: “We just wanted to choose a really large number.” Sounds like the equivalent of shock and awe made famous by Vice President Cheney and Donald Rumsfeld.

The bill takes a slightly more cautious approach. It allows Mr Paulson to spend $350B immediately buying up the mortgage-related assets from the stricken US financial sector and another $350B with the approval of Congress. But this is unlikely to take place immediately as the institutional arrangements have to be made, people recruited, pricing mechanisms agreed and transactions concluded. If the Treasury pays too much for the assets it can lose big-time while if it pays too little the whole objective of the scheme will be defeated.

Ideally this can take several weeks but time is surely a luxury which they cannot afford.

What next?
Despite the cold reception of the market to the bill, everyone agreed that to do nothing in the circumstances was simply not an option, that haemorrhaging would exacerbate and the collapse of the largest economy would no longer be a matter of if but when. While there are many who take satisfaction in the pain and humiliation of the US, it is still the world’s largest economy, largest buyer of goods and services, borrower, contributor to the United Nations and the country from which the developing world including Guyana receives its largest remittances. It is in no one’s interest for the US economy to collapse.

A weak US economy poses a real threat to the rest of the world. Therefore anything that prevents a catastrophe in the US will help the rest of the world, which after all is now interconnected not only by the internet, but by globalisation of which banking is perhaps the most integrated example. Not only will the package allow the US to fix some of the fundamental problems of the economy, but it should help to restore confidence to the markets and give a short-term fillip to stock markets around the world while allowing banks to carry out one of their most essential and routine functions – lending to each other.

But the problem is as much a structural one as it was a cash flow question. Bigger and more fundamental changes are necessary not only in the US but abroad as well. It is naive to think that the mortgage and financial crisis is a peculiarly American thing. The US’s soul brother, the UK has its own crisis. Having nationalised and guaranteed the deposits of the bank Northern Rock and the mortgage company Bradford and Bingley, the state now has a combined burden of public sector debt and exposure to the housing market resting on the shoulders of the UK taxpayer to almost £1 trillion.   In all of this small countries have little say, although we in Guyana cannot be unmindful of the real danger to us as a commodity producer in a world economy which according to the UN Conference on Trade and Development (UNCTAD) is teetering on the brink of recession. A world financial system that seems to falter fundamentally almost with the predictability of the holding of the Olympics must be fundamentally flawed. Not too long ago it was the Asian crisis and then there was the near collapse in Mexico to which President Clinton lent a helping hand. It is perhaps a measure of the size of the US economy or those of the rest of the world that there is no one willing or able to lend to America a helping hand.