With Oil and Gas to Flow in 2020: A Direct Benefit to Guyanese is Through Cash Transfers

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By Dr. Tara Singh

We do not always agree with Professor Clive Thomas, the APNU-AFC economic czar, but there is one subject which he advanced that we can support. It’s the direct payment of cash to Guyanese households from the net revenue of oil/gas, beginning 2020. This is a good idea that deserves serious consideration.

Initially, Thomas had suggested $(US) 5000 per household but later he has moved away from that figure knowing that in the early years Guyana will have to reimburse Exxon approximately $(US) 2 billion which will considerably reduce the net oil revenue of Guyana during the 2020-2014 period.

The logic and rationale for cash transfer program (CTP) are simple. Financial Analyst Sase Singh has stated that decades of different administrations in Guyana have failed to alleviate the poverty level and income disparity to any significant level with the deployment of their respective brand of economic development policies. The masses of the poor have been left to scramble for the crumbs that have fallen from the table. They cannot wait any longer to be a participant, instead they have a right to participate in the feast.

Abject poverty persists in a land rich in natural resources and which has less than 800,000 people. A survey of existing data from IDB, IMF, World Bank, and other sources indicates that the existing poverty level is 36% nationally, with the Amerindian level at 73%. This high level of poverty is scandalous and needs much more than the application of conventional economic development policies and practices. Experience elsewhere, like Alaska, has shown that one of the most effective ways to reduce income inequality and poverty is through the system of cash transfers.

In the State of Alaska, every citizen had been given a check, ranging from $(US)1000 in 1982 to $(US) 3000 in 2016. This policy has largely resulted in Alaska having the lowest income inequality in the United States. The Alaska program has been so successful that many analysts have been advocating for its application throughout the United States, where the disparity in wealth is substantial: with the wealthiest 1% of households controlling 40% of the country’s wealth. There is no sign that this massive gap will decline in the US. Neither will the poverty level in Guyana drop to any significant level with the application of existing economic policies. The Alaska cash transfer system offers a compelling alternative which could be embraced by Guyana.

The Alaskan model comprises the Sovereign Wealth Fund (SWF) and the Permanent Fund Dividend (PFD). The latter makes provision for every eligible resident there to receive a share of the realized benefits from oil/gas through direct cash transfers.

In support of direct cash transfers, Clive Thomas made the following observation at the 1st of August Movement in Buxton: “I believe that some portion of the net cash flow from oil should be dedicated and be given as cash transfers to every single household in this country…Whether it be $(US)5000 per year or whatever it works out at, we can put the figure together – there must be a mechanism in place to ensure every single household and by extension every single person, sees the benefits of oil and gas in terms of cash or cheque received in their accounts.”

Lincoln Lewis agrees with Thomas’ position. “The proposal by Professor Clive Thomas that money from oil should go directly to households or citizens has merit and must be examined.” Citing the political control of national dedicated funds, Lewis states “those who control such funds are the only ones to directly benefit from them.” Lewis reinforces his point by indicating that the Green Paper on Natural Resources seeks to give control to politicians and could be used as a political tool. “This Bill before the House is not about protecting oil and oil wealth and getting it to the people; it is about a few having control and determining who must get what, when, where and how.” The control of oil funds must reside with non-politicians. The PPP strongly supports this position.

WPA Executive, Dr David Hinds, quoting a 2016 IDB study of cash transfer programs in 17 Latin American and Caribbean countries over a 20-year period reported: “Multiple evaluations have proven that these programs have made a significant difference in the lives of the families living in poverty. They help families put more food on the table and enjoy a more varied diet, allow more children and youth (particularly girls) to attend school, and encourage families to regularly receive basic health services. In 2013, approximately 137 million people in 17 Latin American countries received transfers that represented, on average, between 20% and 25% of their household income, and an average of 0.3% to 0.4% of their respective country’s gross domestic product.”

The case for cash transfers is compelling. A recent report indicates that despite the oil wealth of many African countries, poverty and inequality are predominant. They suffer from the “resource curse.” Guyana could also become the victim of the resource curse, unless it is prepared to move away from conventional economic policies and adopt a people-centered approach to development. No economic or social program in the past 50-60 years in Guyana has alleviated the poverty level to any significant degree, and there is no indication that oil wealth will filter rapidly to a substantial number of people, especially those living in poverty. Cash transfers has the capability of lifting a substantial number of people out of poverty as experience in Alaska and other Latin American countries has shown.

If we assume that Guyana’s first net oil revenue is $(US) 400 million, then hypothetically $(US) 250 million could be allocated as cash transfers at an average of $(US)1,190 per household in 2020 up to 2024, when this figure could be adjusted upwards as net oil revenue will expand greatly by then. The remaining $(US) 150 million could be allocated to specific projects, including the Sovereign Wealth Fund. Of course, these figures are arbitrary in nature and will be adjusted as needed.

What is being proposed here is not only cash transfers from net oil revenues but also funding for important projects, like infrastructure, jobs, education, health, social services, SWF, etc. Our position though is that cash transfers should take the form of vouchers/coupons dedicated to housing, job creation, micro business start-ups, education advancement, agriculture expansion, etc. The issue of cash transfers is not a new one for Guyana. Without oil, the PPP had introduced the highly successful school cash voucher program, which already offers the architecture for the cash transfers. In the first 5 years of CTP, the amount of cash transfers should be stable but as net revenues begin to expand this could be adjusted upwards. Also, the various sectors’ allocation could be increased considerably. But it’s important that Guyanese begin to get direct benefits immediately. The high poverty rate of 36% is a damning indictment of all administrations, including colonialism. Guyana should not lose this opportunity to begin to lift over 1/3 of its population out of poverty. No other economic or fiscal policy could render immediate relief onto the poor as the cash transfers can do.

While the PNC was somewhat lukewarm to the original proposal for cash transfers, Foreign Affairs Minister Carl Greenidge recently said that they haven’t ruled out cash transfers. We hope that other political parties, including the PPP, can support this program. How much should be given each year should be based upon a formula developed by and controlled by an independent body. The politics must be removed from the administration of the Cash Transfer Program (CTP).

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The views expressed in this article are those of the writer and do not necessarily represent the position or policy of the THE WEST INDIAN. 

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