Friday, March 11, 2011

Who should be believed: A less than credible Prof Thomas or the Directors of the IMF?

Agloo Persaud: I am sure that many readers of your Sunday Stabroek (March 6), like myself, will be totally perplexed after reading Prof Clive Thomas’s article on page 13 and the report of the International Monetary Fund on page 14. Why am I perplexed? Because Prof Thomas’s findings seem to be at complete variance with the findings of the IMF on the Guyanese economy.

Here are Prof Thomas’s words: “My position is that, on the whole, government activity in Guyana’s economy is both inefficient and ineffective. The basic rule is: reducing inefficient and ineffective government expenditure would bring benefits to the economy in the same way that increasing efficient (sic) and ineffective government expenditure would harm it.” And again:

“My proposition is that the economy of Guyana suffers from government activity being too big, because these activities inordinately waste national resources.”

To be fair to Prof Thomas, he arrives at his position after due analysis and consideration of terms such as ‘efficient’ and ‘effective,’ which he admonishes lay persons to be on their guard against as these words are used in a technical, arcane manner that has to do with markets.

In other words Prof Thomas engages in an esoteric economic analysis which lay persons may find difficult to follow, although they would definitely understand his general proposition that “government activity in Guyana’s economy is both inefficient and ineffective” and “the economy of Guyana suffers from government activity being too big because these activities inordinately waste national resources.”

Quite frankly I think Prof Thomas is being disingenuous since he is aware that the layman will latch on to his conclusions without in the least bothering about the economic gobbledygook about “perfect markets” and “market failure.” In other words the layman on the Stabroek minibus will apply the ordinary usage of the words ‘efficient’ and ‘effective.’ Prof Thomas’s article, after all, is not for university students of economics but the general public, many of whom will just unquestioningly accept his propositions/conclusions because of the position he holds in society as a distinguished Professor of Economics.

Now, if economic efficiency is not about economic growth, reduction in poverty, increases in wealth and improved productivity, etc, then the English language is being used by some economists in an Alice in Wonderland sort of way, namely, the words mean what they want them to mean.

Little wonder that the international financial melt-down of 2007-09 bore the hallmarks of economic models, now discredited, which move farther and farther away from reality and which caused (and are still causing) so much upheaval in the day-to-day lives of ordinary people.

Without massive inputs on the government’s part very little would get done in Guyana by way of infrastructure development in all spheres – be it agriculture, education, poverty, reduction, transport and so on.

Injections of foreign capital into the economy have picked up, but the main sources of government funds have came from taxation, soft loans, grants and international institutions such as the IMF. The government has had to be the biggest player since private investors look to places with huge populations, cheap, skilled labour and a captive market to invest their money.

Enter the IMF on whose March 4 public information notice SN reported on March 6; the report had this to say: “Guyana’s outlook remains positive for 2011 … and through the medium term. It posited the road works, the Amaila Falls Hydro Project and implementation of the Low Carbon Development Strategy should maintain growth levels …”

And again: “In its assessment the IMF commended the authorities for macroeconomic policies that have buttressed stability in the face of external and domestic shocks. The directors pointed to the development of forestry-based environmental services, private sector plans for the tapping of Guyana’s natural resources and large infrastructure investments… a few directors called on the donor community to fulfil their development assistance commitments.”

Yet again: “Directors were of the opinion that monetary management has been pivotal to microeconomic stability.” There are more positive comments made by the IMF Directors and of course, several caveats, all of which can be viewed on page 14 of SN. My question is, how could such highly qualified economists arrive at conclusions which are diametrically opposed to those of Prof Thomas’s? My dilemma is whom should I believe? Prof Thomas or the Directors of the IMF?

I have to give the IMF the thumbs up for several reasons. My observations of the economic reality in Guyana would suggest that their appraisal is more objective, unbiased, rooted in reality and they put their money where their mouth is. Moreover, having read Prof Thomas’s articles on overseas remittances to Guyana and the so-called ‘black’ economy, I am constrained to conclude that he is one of those ivory-tower economists living in an unreal (perhaps surreal?) world who has aided in the endeavour to give economics the moniker of ‘the decimal science.’

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