Professor Clive Thomas

Political will and consensus: Making conditional cash transfers work

Four concerns
In last week’s consideration of the pros and cons of conditional cash transfers as a policy tool for fighting the increased poverty and economic distress occasioned by the global economic crisis I referred to the results of impact evaluations of these schemes, mainly in Africa and Latin America. Overall, these showed that there were strong positive short-term and long-term impacts on the poor. The positive short-term impacts flowed from the early injection of cash directly into the hands of poor people. This placed them in a better position to manage the negative impacts and short-term risks associated with the crisis.
The positive long-term impacts on poverty varied with the type of conditional actions required of individuals and/or households in order to qualify for cash support under the programme. In the instances of health, education and nutritional conditional requirements, there has been noticeable improvements in the health status, educational and training levels, and nutritional outcomes for the designated beneficiaries.
Added to this, there have been other significant benefits. For example, the impact of increased spending by poor persons from their cash transfers, at a time of economic recession, has injected buoyancy into the economy. Similarly, their impact on the distribution of income and assets has helped to reduce gaps between the poor and non-poor.
Taking these positive results into account, I would still argue that four crucial concerns need to be properly addressed if these schemes are to be consistently fruitful and beneficial to the poor. First, these schemes need to be carefully structured with clear unambiguous criteria and rules for establishing the eligibility of beneficiaries, the attainment of exit requirements for those no longer eligible, and the fulfilment of the conditional undertakings attached to the schemes. This places a strong premium on professional and competent staff, best-practice socio-economic databases, and capability in social engineering. Second, the schemes have to be independently monitored, reviewed and verified (MRV). This requires a strong regulatory/oversight/ institutional framework so as to ensure good governance in these schemes and that there are clear and severe penalties against persons engaged in illicit activities. 

Corruption 
Third, without doubt in my mind, the single biggest threat to these schemes is corruption. This can come from two sources. One is from those individuals/households who try to ‘smart’ the arrangements. Usually this is attempted through falsifying the required socio-economic information and concealment of sources of income and access to assets. The other type of corruption is usually politically-inspired. This can take many forms, but the most typical are nepotism, political cronyism and ‘pork-barrelling.’
Indeed corruption of these types is possible in all social protection schemes. In-kind benefit schemes have multiple opportunities for abuse. For example 1) in the purchase of items 2) in the storage/inventorising of items 3) in their distribution and 4) in their ultimate consumption. Conditional cash transfers have one major opportunity for wrongdoing. That is when the cash-payments are made. However these can be done through bank transfers to beneficiaries (debit cards!). Of course there is also the opportunity arising from the requirement of beneficiaries to fulfil their undertakings.
Finally, a major difficulty facing these schemes is the sustainability of their financing. In developing countries the two main sources of funding are 1) the international community and 2) national governments. In the United States, (New York) where Mayor Bloomberg pioneered a conditional cash transfer mechanism for poor New Yorkers, the scheme was funded with private donations.
In developing countries, the international community has not committed to long-term indefinite funding. When the resources they offer to these schemes come to an end, the schemes are usually terminated. When national governments finance them, they too often see the schemes as bringing them political benefits so that their duration is limited to the political/election cycle. These two considerations have led to some worthwhile schemes being terminated. Because of this I would argue very strongly that the success of conditional transfer programmes depend on both the political will of governments to start them, and a broad political consensus in support of them, as enduring aspects of the efforts to fight poverty and underdevelopment.

T&T’s experience
In conclusion it would be useful to note briefly the Trinidad and Tobago Targeted Conditional Cash Transfer Programme (TCCTP) as it has been named, because it has been the subject of much attention by the regional media over the past two weeks.
This conditional cash transfer programme started in 2007 just prior to that country’s general elections. The suspicion is that it might have had more to do with political cronyism and electioneering than with a genuine concern for the plight of vulnerable persons and households in that country. Be that as it may, over US$10 million (G$2 billion) has already been allocated to the programme. The programme provides cash to the vulnerable through debit cards issued to them, for the purchase of basic food items.
A recent independent review of the programme noted that about 20 per cent of the persons receiving the cash payments (about 6,000) did not qualify as they did not meet the criteria for receiving support.
To its credit the government has vowed to remove these persons from the programme. However, it has also pledged additional funding for the programme in this year’s national budget, to the tune of 35 per cent, on account of the pressures already created by the global economic crisis and its local impacts.
This episode clearly reveals both the strengths and weaknesses of conditional cash transfers as a tool for fighting poverty and increased economic distress in the Caricom region.
Next week I turn to the third and final lesson to be learnt from experiences in dealing with the present global crisis. That is, where does trade fit in with national efforts to stimulate the economy and help the poor at times of global economic crisis.

Magnification or manipulation: Guyana’s rebased national accounts series

As indicated in last week’s column I had planned to continue this week with a discussion of the rebased national accounts series for Guyana. Since then, however, several readers have contacted me querying the magnification revealed in the official rebased calculations of Guyana’s national accounts, which uses 2006 prices in place of the 1988 prices previously in use until now.  It is a sad commentary on the confidence persons repose in official statistics when most of those who have contacted me have questioned the integrity of official motives behind this and go on to hint that the government is up to some scampishness and/or is manipulating the economic data for political purposes. While clearly from what I revealed last week, it would not be possible to accurately assess Guyana’s economic performance over the crucial two decades or so of the PPP/C administration, I need to state up front, however, I do not know what motivated the authorities to undertake the rebasing exercise at this juncture. 

Why now?
As a matter of pure fact, the Bureau of Statistics has offered at least three sensible reasons why the exercise was undertaken at this particular time. First, the Bureau has pointed out that since the first official preparation of Guyana’s national accounts in the 1960s, there have been two rebasing exercises. (There are, however, academic estimates of Guyana’s national accounts prepared as far back as the 1950s, by the University of the West Indies). The first rebasing exercise was undertaken in 1977, and the second in 1988.

This means therefore that, prior to the recent rebasing exercise, the national accounts were calculated on a price and output structure that is more than two decades old. During that time, however, Guyana’s production and consumption structures would have changed significantly. If so, then relative prices would have also changed. Further, as we now know entirely new products have emerged into prominence since then (for example, cell phones, computers, and television companies).

The second reason the Bureau has advanced is that the Committee of Caribbean Statisticians had passed a resolution stating that all member states of Caricom should revise their national accounts using a base year, which is year 2000 or later. This was designed to ensure greater comparability across the time series data for Member States.

The third reason, which explains why the year 2006 was specifically chosen for Guyana is that this is the reference year, which the Bureau had used for the Household Budget Survey. The structure of this survey and the information gathered from it would have been indispensable to the verification of the construction of the national accounts tables based on 2006 prices.

Results
The exercise was undertaken by the Bureau of Statistics as a three-year project (2007-2009) supported by the Central Statistical Office of Trinidad and Tobago, the Inter-American Development Bank, the United States Census Bureau and the Caribbean Regional Technical Assistance Centre (CARTAC). As I pointed out last week the Bureau of Statistics has admitted that there are two inevitable consequences of this rebasing. One of these is that there would be increases in the values of key components of the national accounts.  And, the other is that the growth rates of the revised GDP (2006 prices) would be higher than in the old series (1988 prices).

For the convenience of readers, I have summarized the key results in these two areas in the Schedule (1) below.
Schedule 1: GDP/Growth Calculations based on 1988 and 2006 prices (G$ billion)

Categories                                                                           Years 

2006        2007     2008    2009 

Gross domestic expenditure, 1988 prices          246.6    309.7     364.3    357.5 
Gross domestic expenditure, 2006 prices         364.3     451.5     519.7    514.8 

GDP at current factor cost, 1988 prices                154.0      171.2    190.8   202.2 
GDP at current basic prices, 2006 prices              262.0      305.8    349.5   359.6 

GDP at current market prices, 1988 prices            183.1     217.5      236.1   255.8 
GDP at current purchasers’ prices, 2006 prices 292.0 352.1 391.5 413.1 

Growth Rate*, 1988 prices                                            5.1     5.4     3.1     2.3 
Growth rate*, 2006 prices                                         N.A.     7.0     2.0     3.3 

Note*:    GDP at constant prices based on the year as given.
N.A. not applicable.
Source:   Bureau of Statistics, 2010.
Readers would observe from the schedule how large the increases are in the new 2006 revised national accounts categories, when compared to the old series based on 1988 prices. Thus, for example, the familiar GDP at current factor cost (or current basic prices in the revised version) has increased by more than three-quarters (77.5 per cent)! Indeed, this increase ranges from 71 per cent in 2006 to 83 per cent in 2008. GDP at current market prices (or current purchaser’s prices in the new 2006 prices) has increased by about 62 per cent.

Turning to the growth rate of constant GDP for the years 2007-9 based on the old 1988 prices and rebased 2006 prices, we observe a higher overall rate of growth in the latter. This is so despite the recorded slower rate of growth for 2008. The annual fluctuations are also larger based on the new 2006 prices (ranging from 7 per cent to 2 per cent) than is the case for the old 1988 prices (ranging from 5.4 to 2.3 per cent).

Because of these very large changes in the results readers could imagine how difficult it would now be to use a long-term times series, which includes the years 2006-2009 for analysis.  The use of data from the new series for these years would distort the trend, while their exclusion and reliance on the old 1988 series would be problematic. At the same time the new 2006 series only covers four years, which makes it of no use for long-term trend analyses of the economy.

Of note, the Bureau of Statistics also categorically claims that it cannot use the data it has, to recompute on the basis of 2006 prices, the national accounts for years earlier than 2006. 

In conclusion readers should note that, consequent to the rebasing of the national accounts calculations on 2006 prices, the classification of the structure of Guyana’s economy has undergone significant revisions as well. Next week I shall address these changes before continuing with my evaluation of the impact of the ongoing global economic crisis on Guyana’s economy.

Statistical illusion or real changes: Guyana’s new rebased national accounts

Last Sunday’s column focused on two key results following on the rebasing of the national accounts calculations from the 1988 base year previously in use, to the 2006 base year.  One was the large increase in the size of familiar national accounts totals like GDP at factor cost and GDP at current market prices.  And, the other was an overall increase in the growth rates of GDP at constant 2006 prices as compared to those arrived at using constant 1988 prices.  It is also the case that some of these categories have been renamed.   Thus, GDP at factor cost, which was the term used previously, is now termed GDP at basic prices and, GDP at current prices now becomes GDP at purchaser’s prices. 

This week I shall wrap up the discussion of this topic.  I will focus on revealed changes to the structure or anatomy of Guyana’s economy and its performance, arising from the rebasing exercise.  Readers would recall that one of the key considerations, which has prompted the new rebasing exercise, is that there have been significant changes to the structure of Guyana’s economy since 1988, the base year on which the old series had been calculated.

From sector to industry
The rebased national accounts (2006 prices) is designed to secure at least three major innovations.  The first of these is to discover new, and hopefully more reliable, data sources for measuring the economy.  The second is to utilize an improved system for the classification of those economic activities which comprise the GDP.  The third is to apply new and improved techniques for calculating/estimating economic activities that are included in the measurement of GDP.  For this latter purpose the Bureau of Statistics will continue to use internationally agreed standards and measures for compiling the national accounts.

The basic reference manual used for this purpose worldwide, is the United Nations System of National Accounts, which has been published in various revisions.  The version that was used prior to the 2006 rebasing exercise was the one issued in 1968.  The version that is now used for the rebased series (2006 prices) is the 1993 version.  However, the United Nations manual was revised again in 2008.  This recent version is not yet in widespread use, but several countries are planning to transition to the implementation of the 2008 version during the next five years.

Of note the United Nations produces the national accounts reference manual in collaboration with a number of international economic organizations, namely, the IMF, World Bank, Organization of Economic Cooperation and Development (OECD) and the European Union (EU).

The use of the 1993 reference manual has had several noticeable impacts on the revealed structure of Guyana’s economy.  Among the more important are, 1) significant changes in the sectoral (now relabelled industrial) composition of the GDP; 2) better coverage and classification of economic activities; and, 3) a far better integration of the established income, expenditure, and value-added approaches, toward the measurement of the national accounts.

One striking result is clearly displayed in the usage of the United Nations, International Standard Industrial Classification (ISIC) System Revision 4.  This has replaced the concept of sector with that of industry.  For purposes of  Guyana’s national accounts, the economy is now classified into 14 of 21 industry clusters or categories derived from the ISIC, with the remaining seven captured as an Other  category.  The 14 sectors/industries are listed below (Schedule 1) along with the seven items included as Other.

Schedule 1:
1: Agriculture, forestry & fishing            8: Transport and Storage
2: Mining & Quarrying                9: Information & Communication
3: Manufacturing                 10: Financial & Insurance
4: Electricity, gas & air conditioning          11: Real Estate
5: Water Supply, sewerage & waste         12: Public Administration
management
6: Construction                    13: Education
7: Wholesale & retail trade            14: Health & Social Services

Other includes: Accommodation & Food Services; Professional & Technical; Administration & Support: Arts, Recreation & Entertainment; Household activities; Foreign Organizations; Miscellaneous.

As a result of this reclassification, the structure of the Guyana economy as reported in the new national accounts 2006 series, differs from that portrayed in the series based on 1988 prices.  Thus for example, the top five industry or sector categories in 2009, account for about two-thirds of GDP when based on the new 2006 prices.  The top five for the same year, however, account for over three-quarters on the basis of the previous 1988 prices!  Of equal note, the composition of the top five industry or sector categories has shifted significantly between the two base years.

These data are portrayed in Schedule 2 below

Schedule 2:

Leading sectors percentages share of GDP at constant 1988 and 2006 prices for 2009

Leading Sectors at 2006 prices              Leading Sectors at 1988 prices
Agriculture, fishing and forestry    (21.4%)        1. Agriculture, fishing and forestry  (28.1%)
Mining and Quarrying                   (12.6%)        2. Transport and Communication       (14.2%)
Wholesale Retail Trade                  (12.4%)        3. Government                     (11.5%)
Construction                             (9.8%)        4. Engineering and construction      (11.0%)
Public Administration                (9.0%)        5. Distribution                         (10.5%)
Total                62%                            6.  Total                      75.3%

Source: Bureau of Statistics 2010.

The data in Schedule 2 reveal that calculations for the two base years (1988 and 2006) show “Agriculture, fishing and forestry” is the leading category, although to a lesser extent on the basis of 2006 prices (21 per cent) when compared to 1988 prices (28 per cent).  “Mining and Quarrying” appears in the list of five top industries/sectors based on 2006 prices, but does not appear in that for 1988 prices.

Similarly, “Transport and Communication” appears on the top five list on the basis of 1988 prices, but does not appear in the top five list in the series based on 2006 prices.

To what extent these changes in the size, rates of growth, and composition of the national accounts are a statistical illusion following on the rebasing exercise or are due to real developments in the economy will only become clear as data on the new (2006) series unfold in the future; as the saying goes, time will tell.

Next week I shall conclude this topic and resume the discussion of the impact of the global crisis on Guyana and the wider Caricom region.

Remittances: Wages of sin or hard-working emigrants

This week I shall consider the impacts of the global financial and economic crisis on remittance flows to Guyana and the wider Caricom region. Official reports of international financial institutions (IFIs) indicate that the greatest financial impacts on the region, apart from the collapse of the CL Financial and Stanford groups in Trinidad and Tobago and Antigua and Barbuda, have been felt in the reversals of remittance flows. This has been particularly striking for Haiti, Jamaica, and Guyana, which receive the largest inflows, based on official statistics.

Transparency, full disclosure
In the interest of transparency and full disclosure, I wish to state up front that I have very little confidence in regional statistics on remittance flows or the explanations offered to account for these. I do, however, readily acknowledge that the circumstantial evidence substantiates the view that these flows are large, not only in their absolute size but as proportions of their respective country’s GDP or other similar economic magnitudes.

Thus official data for Jamaica reveal that remittance flows prior to the global crisis peaked at about US$2 billion and averaged about 16 per cent of that country’s GDP for the five years leading up to the start of the global crisis (2003-2007). This figure almost equalled Jamaica’s export of goods during the same period (98 per cent) and was over 240 per cent of foreign direct investment (FDI) flows into Jamaica. This was the largest size of remittance inflows to any Caricom member state.
Similar data for Guyana show that remittance flows peaked at about US$325 million in 2008 and had averaged just over 23 per cent of its GDP for the five years leading up to the start of the global crisis (2003-2007), compared to Jamaica’s 16 per cent. This figure is about 30 per cent of Guyana’s exports of goods and was more than 275 per cent of its FDI during that period.

As I pointed out in an earlier column, these official data do not capture informal transfers, such as friends or relatives bringing cash and not directly passing this through the banks or money transfer agencies, nor does it cover transactions in kind.

Statistical absurdity
While these omissions would suggest that the official data are systematically understated, my main concern is not with the underestimation, but with the attribution of the official transfers mainly to the hard-working Guyanese diaspora living in Canada, the USA, Britain, and other parts of the Caribbean. This attribution is clearly seen in the claim that with loss of jobs and weakened employment prospects in these countries as a result of the global crisis, remittance flows will stall. Indeed, official remittance flows to Guyana declined by 9 per cent during 2009. But the question to be asked is: do remittance flows to Guyana mainly reflect income and employment prospects in the countries the diaspora live in, as suggested?

Consider the fact that the value of official remittance flows to Guyana averaged US$70 million for the years 2000-1 and that by 2003-4 these had more than doubled, to reach US$147 million! This occurred despite the setbacks of 9/11 and its aftermath. What income and employment trends in the countries the diaspora live in could generate such disproportionate responses? The situation becomes more absurd when it is recognised that these data indicate that between 2004 and 2008, remittance flows to Guyana grew in excess of 50 per cent per annum, as reported in the most recent IMF Country Report for Guyana!

To my mind, this exceptional growth suggests that the sector with the most exceptional growth performance in Guyana (and I might add Jamaica as well), is largely responsible for these financial flows. That sector is the irregular economy or “phantom economy” as I have termed it, in Guyana. Only the proceeds of crime can explain such phenomenal growth in remittance flows, certainly not simply prosperity levels in other countries.

Of course official IFI sources would not want to entertain such an exploration even though the craziness in the data they report begs for a better explanation than simply the one which suggests remittance flows to countries like Guyana and Jamaica reflect principally the proceeds of hard-working Guyanese and Jamaicans in the diaspora.

Jamaica’s former trade minister
I was fortunate to discover through internet searches after I had composed this column that a former trade minister in Jamaica (and a businessman in his own right) Mr Claude Clarke had arrived at a similar conclusion for Jamaica in a Jamaica Gleaner column for Sunday, November 30, 2008.
Writing on ‘Jamaica and the Global Financial Crisis’ he stated:

“I am not convinced, as most of us appear       to be, that this ‘blessing’ of remittances is all-representative of the generosity of hard-working Jamaican emigrants.”
He finds its dramatic growth from US$160 million in 1992 to nearly US$2 billion in 2007 inexplicable, as this was six times greater than the growth rate of the US economy. He argues that this is clearly a development that is not reflective of, or dependent on, the economic fortunes or health of the United States economy. The behaviour of Jamaican remittances has been too inelastic over time, as economists would put it. He goes on to be blunt and states that “the demand for drugs is by its nature also highly inelastic.” Along with this comes a similar inelasticity in the demand for trafficking and money-laundering services.

From this perspective and mine, remittance transfers with criminal intent in order to make illegal payments have become totally indistinguishable from legitimate transfers. No one, neither the money transfer services, nor the banks, nor indeed unwitting friends/family or other persons who facilitate these transactions, would ever know the true purpose and design behind them.

As a practical matter, the Guyana remittance statistics cover four categories of payments, namely, workers’ remittances, (sent presumably out of their earnings/savings); payments to compensate persons whom emigrants employ back in Guyana; what are termed as ‘migrant transfers,’ (presumably funds sent by temporary migrant workers); and a residual category termed: ‘other unrequited’ transfers. Workers’ remittances have historically accounted for most of these transfers, in some years reaching above 90 per cent of the total! This category has, as would be expected, accounted for most of the growth in remittance flows to Guyana.

Next week I shall continue this discussion and seek to link it to the impact of the global financial crisis on the irregular (phantom) economy of Guyana.

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