…warns Gov’t, private sector of US “gifts” with high associated fees
Former Finance Minister, Winston Jordan, has assessed that high-ranking American officials have recently come to Guyana bearing “gifts” and promising investment sums which outmatch the country’s Gross Domestic Product (GDP) times 39. However, the former Minister cautioned that while foreign investment into Guyana’s economic development should be welcomed, the Government and the private sector must ensure that Guyana is not bound to any agreements which will plunge the country into debt.
In a Letter to the Editor, Jordan addressed the visit of the United States (U.S.) International Development Finance Corporation (IDFC) Chief Executive Officer (CEO), Adam Boehler and six U.S. Government agencies, including the Department of the Treasury, the Department of State, the National Security Council, the Export–Import Bank, and the Department of Homeland Security. On the occasion, the IDFC — America’s development bank — and the visiting agencies floated over US$200 billion in loans as being available for Guyana to tap into for investments and developmental projects.
Jordan said that the sum was “dangled” to the country’s policymakers and private sector representatives who had painted a picture that the local private sector is “starved of access to foreign funding”.
Jordan underscored that while no one should begrudge the Administration’s attempt to widen the sources of financing for Guyana’s economic development, the public should question the agreements to which its leaders could bound the country to and the possible repercussions.
Jordan revealed that prior to and after sums are released to Guyana, several fees must be paid. These include an upfront Retainer Fee which covers due diligence costs such as travel to the project site; a Facility/Organisation Fee, a one-time, flat fee usually paid at the time of loan agreement signing or first disbursement; a Commitment Fee, which is an annual percentage charged on any amount not disbursed; an interest Rate, which is a negotiated spread over the base cost of funds; a maintenance Fee, a sum which will be paid annually to cover the cost of monitoring the loan and other fees which are related to the cost of the services of outside consultants or attorneys that may be required by IDFC, related funding costs, and any expenses related to registration or notarisation of documents. This information was not revealed to the media at the 8-minute press conference hosted by the U.S. Ambassador, Boehler and Chairman of the Private Sector Commission (PSC), Nicholas Boyer, on October 13, 2020.
“Notably, the IDFC classifies Guyana as an upper middle-income country. This likely means that any financing provided would be on non-concessional terms characterized by high and potentially variable interest rates and relatively short repayment periods. It should also be noted that there is a preponderance of fees associated with financing obtained from the IDFC, which would result in elevated borrowing costs,” Jordan examined.
He added: “These observations are neither exhaustive nor meant to puncture the aura of excitement created. Rather, they emphasise the need for prudence and probity in the conduct of our financial affairs, going forward, so as not to reverse the hard-won gains in this area. Both the Government and the private sector are advised to tread carefully.”
Though the Government and PSC painted a picture as though Guyana was “starved” for foreign investment, the former Minister said that the previous APNU+AFC Administration, being aware of the huge deficits that exist in the country’s social, physical and economic infrastructure, had reached out for funding from multilateral financial institutions.
Listing some of its achievements, he noted the clearing of hurdles for Guyana to gain membership of the Islamic Development Bank (IsDB) in 2016 which resulted in US$900 million being made available to Guyana; a renewed relationship with the OPEC Fund for International Development (OFID) which resulted in a concessional loan (at 2.5% interest rate) of US$20 million to assist the Government in meeting COVID-related expenditure; two COVID-19 related loans from the Inter-American Development Bank (IDB) totalling US$51 million, secured by the APNU+AFC Administration just before it left Office; and the World Bank’s US$90 million to be given to Guyana from the International Development Association (IDA) over the next programme cycle.
Jordan stated in his letter: “The truth is that for the most part, the private sector has, for various reasons, shown a disinterest in using the available funding of the private sector window of the multilateral financial institutions, of which Guyana is a member. Yet, well-known institutions, such as the International Finance Corporation (IFC) of The World Bank; and the IDB Invest and the IDB Lab of the IDB have been at the forefront of financing bankable private sector projects in member countries. A word of caution to the private sector and the policy makers: while we should not look a gift horse in the mouth, care and extreme caution should be exercised as you engage new sources of funding.”
Later, during a press conference, Leader of the Opposition, Joseph Harmon said that the APNU+AFC is concerned about the recent agreement signed between the People’s Progressive Party/Civic (PPP/C) Administration and U.S. Secretary of State which form a part of the visit of IDFC. He said that the concern is that ordinary Guyanese are unaware of the full terms of the agreement signed by the Government, the payments to be made and the impact this will have on investments and therefore the lives of citizens. He also questioned the plans in place for ensuring local content protection for Guyanese.
