Making sense of the depreciation of Guyana dollar: The Jagdeo shock?

Mr Jagdeo has been blamed recently by government officials and supporters alike for instigating a capital strike. The argument goes that Mr Jagdeo has immense powers in the private sector such that his business associates and friends have curtailed their investment since the new government came into power in 2015. No doubt the former President has many friends among the investor class. He spent years moulding his new private sector that sometimes crowded out parts of the older one. Indeed, these columns and my academic research have labelled his regime as an elected oligarchy.

This is not meant to diminish his economic accomplishments. There were. But these have to be seen within a broader picture of human development. I will certainly address Jagdeoian economic policy in a coming essay. As these essays have outlined numerous times, a privatepublic approach – such as the Jagdeoian way – has to be based on credibility and legality so as to minimize the perception of corruption in a much divided society. It is for these reasons we cannot lift the Singaporean, Taiwanese or South Korean experiences (but we can seek insights from them) and plant them right into Guyana. Guyanese industrial policies have to be underpinned by a reorganized meritocratic and independent state bureaucracy and major constitutional change, since private incentives and markets alone cannot get the job done. Otherwise, at best we will rotate elected oligarchies once there continues to be free and fair elections.

Can we find suggestive trends that rule out the possibility that the former President instigated a capital strike? We have to take a look at the trends in private investment, private consumption and government capital investment. We cannot just look at billions of Guyana dollar of these three variables since their increase over time would include inflation. Therefore, we will express everything as a percent of GDP, so as to expunge the inflationary effect.

The chart shows that private investment as a percent of GDP collapsed in 2016 to 9.2% from 22.6% in 2015. That is a precipitous decline in private investment that some may present as evidence of the capital strike (the Jagdeo shock). From 2006 to 2013, private investment was pretty flat averaging 14.3% over this period. However, it jumped in 2014 and 2015 to 22.6% owing to mining and extraction investments. Therefore, the 9.2% in 2016 falls about five percentage points below the long-term average from 2006 to 2013. Is Mr Jagdeo responsible for this five percentage point decline?

Businesses, however, respond to aggregate consumer demand (household demand). The trend of total consumer demand in the Guyanese economy over 2006 to