Reform of the international financial architecture was high on the agenda of this year's G-20 meeting in London in April. But smaller countries fear that things are not going in a direction that will help them. Guyana was in IMF programmes for 20 years so its president, Bharrat Jagdeo, knows a lot about their shortcomings. The Banker's editor, Brian Caplen, asked him how things could be improved and also got his assessment of the Guyanese economy.
Q: Is there a need for a new Bretton Woods type of reform?
A: The Commonwealth heads of government met in Uganda in 2007 and we agreed that it was important to start work on changing the existing architecture. We then set up a committee chaired by [UK prime minister] Gordon Brown and we met in London to discuss this issue - 10 heads of government from the Commonwealth. We came up with a series of recommendations including a call for a new Bretton Woods-type conference. We outlined a series of principles on which the new financial architecture would be based but then the crisis hit. I am a little bit disappointed now that there seems to be a move away from this call for a new Bretton Woods-type of arrangement because many people in the developed world, including the UK, feel that the G-20 is an adequate arrangement, and we are afraid that the voices of small countries are not going to be heard in this new architecture that is being created to replace the one created in the 1940s.
Q: What is wrong with the G-20 proposals?
A: The G-20 countries are the big guys again. They control 86% of world output and it is important that we pay attention to that. We don't want to be nuisances. To have 192 countries meeting to make decisions is impossible but at least we should have them sitting together for a few days to create the architecture and so as to give legitimacy to the architecture. We need to have a say in its creation and then to find a more effective mechanism for managing that architecture which could be the G-20 plus five representative heads from Latin America, the Caribbean, Africa, the Middle East and Asia - one representative each - so that it becomes more manageable to run. That's how we see it. We are not being unreasonable, we realise that you can't have an effective organisation with 192 countries at the table.
Q: Have there been any benefits from the G-20 resolutions?
A: Until now no one can say to us how countries such as ours would benefit from the resources pledged at the last G-20 meeting. We don't know how much has been raised, what instruments have been created for us, how we can access these funds - so it doesn't serve our purpose.
Q: There is a new IMF-lite programme that countries such as Mexico have signed up to.
A: Yes, but Mexico poses a systemic risk so Mexico will always have the attention whether it is IMF-lite or IMF-heavy or IMF-regular. The countries that can create systemic risk can pick up the phone and call the managing director of the fund and get attention: Turkey, Hungary, Poland, etc. If you have good political connections or you pose a systemic risk you can get any sum of money from the IMF. And many times without conditionalities because these countries are seen as a buffer to contagion. If you are small [by contrast] it's a nightmare.
Q: You have expressed your disappointment at the lack of senior IMF and World A: Bank representation at this year's Caricom heads of state meeting.
If you can't get attention for 14 heads of state how much attention will you get as an individual country? You are dealing with these institutions that really don't respond. I wrote a paper for the Commonwealth just before the crisis on reforming global architecture. I was saying that these institutions have to be reformed in many ways. It's not just a question of giving us greater representation on the board, although that is important for the large countries.
Where the reform will help countries such as ours in a greater way is through new instruments to effect an intermediation of resources to us in times of crisis. You can have an event that poses a systemic risk to our society such as hurricanes, or floods, that could wipe out the equivalent of 80% of gross domestic product in a country like ours.
In 2005 we had a flood that wiped out the equivalent of 60% of GDP. We were under water for four weeks but the first thing the world knew was when former US president Jimmy Carter called me and said he was going to publicise it. We were ignored by the world. We got $3m assistance from the rest of the world six months after the disaster. Countries need a line of credit [for natural disasters] in a similar way to when you have financial contagion. When a country suffered a hurricane of such magnitude, this would get triggered immediately. The event triggers the line of credit so you can respond quickly to alleviate peoples' misery but also to start to rebuild society. There is no such instrument from the multilaterals and developed countries at present.
Q: How best could the IMF assist small countries?
A: We need to develop a new set of instruments that respond to the peculiarities of tiny countries - a country of 35,000 people [Guyana has a population of 770,000] is different from a country such as India, China or Mexico. Second, we need to change the incentives for the multilateral staff and how they get promoted. They advance in the organisation based on dealing with big countries and how much they can get countries to stick to the orthodoxy of the institution. They don't have any incentive to come down to a country, sit with the authorities, review what is good policy and try to craft individual country strategies that respond to the specific challenges of those countries. You always get a blanket solution for all countries. We need to change the incentive whereby success on the ground determines how you advance in these institutions so that it forces the staff to be much more accountable to the clients and also to the institution for results and not simply getting countries to stick to orthodoxies.
This has been our experience, we have been with the IMF for 20 years, we emerged out of this and for the past two years or so we didn't have an IMF programme. But I have seen so much of them that I am arguing for changing the instruments and also for changing the accountability within the institution.
Q: How have things improved in Guyana?
A: We started off with a country that had no democracy for 30 years, a lot of our people fled - we have 600,000 Guyanese living abroad - the economy was totally destroyed and run down. By the time we took office [the People's Progressive Party took office in 1992, Mr Jagdeo became president in 2001] we had triple-digit inflation, a fiscal deficit that was huge, a balance of payments deficit that was 47% of GDP, a debt overhang that was 750% of GDP and using 94% of revenues to service it.
That's what we started out with, we developed some capacity, we worked with the multilateral institutions. We have been rebuilding our infrastructure. We had to spend too much on maintenance and rebuilding, we haven't spent enough on a new wave of infrastructure to trigger new growth centres in the economy - and that's a deficiency - because we were too busy fixing up the roads, schools, hospitals, etc. We have now got our debt servicing down to 4% of GDP. If you take out the non-Paris Club [government] creditors our debt overhang now is about 50% of GDP, inflation has been single digit for the past 12 years (except one year when we had double digit when the food crisis escalated), interest rates have plummeted and our fiscal deficit has come down.
Q: How much of this success was due to IMF programmes?
A: We had our successes working with the programmes but I still think that in a sustained way these institutions need to change. We were a bit lucky, frankly speaking, because we were classified as HIPC [Heavily Indebted Poor Countries], so we got some debt relief and we paid back $1.5bn.
A lot of people think when you enter these structural adjust programmes you get a lot of money. When we look at the debt servicing in the first 11 years of our structural adjustment policy, we paid back more in debts than we got in loans and grants. We practically financed the adjustment policy from domestic resources because we were gaining with one hand and giving it back with the other.
Q: What can Caricom do about reforming the global financial architecture?
A: We are clear on what we would like to see in the new global financial architecture. Today we have just set up a task force that I will head even beyond my chairmanship of Caricom that will comprise of five prime ministers and five technical persons to advance our case for short term relief - because some of our countries badly need that, such as Jamaica - and for an enlightened medium to long-term framework to see a change in the relationship between the international financial institutions and our region.
Q: Climate change is now very much on the Caricom agenda?
A: I had to push very hard in Belize [at the Inter-sessional Meeting of the Conference of Caricom Heads of Government in March] to establish the idea that climate change is a big systemic risk and from Belize to now I think every head of state sees it as important. I am very pleased because we in the Caribbean were lagging [behind] the other regions. Now people are awake to the dangers and know they need to participate in the solution.
We have a low-carbon strategy in Guyana, which sets out how we are going to use this money [any rewards for protecting the rainforest] to transform our country and to address the concerns of indigenous people and a whole range of things.
Q: You have said that the Caribbean free-trade initiative, the Caribbean Single Market and Economy (CSME), is not delivering all it should?
A: We have been guilty of putting up standards for regional products that we don't even demand of products from outside the region; there is a region-wide standard but it's the unfair application of this that creates problems.
The idea of a single market has several components: you can't have the free movement of capital, you can't have the free movement of goods, and then complain about the free movement of people [migration within the Caricom countries was a hot issue at the heads of state meeting in Georgetown in Guyana in July]. You benefit from exporting your goods and running up large trade surpluses with the other member countries and then when their nationals travel to your country you complain about that. That's why I mention that we have to do the CSME in a holistic fashion and be faithful to all of its components - not just pick and choose which ones are good for your country.
