Business Page – January 13th, 2002

Introduction

The title of this article is not a complaint against the frequency with which rice is served as the staple diet. Rather it is a plea for urgent attention to the industry which has been a staple of our economy for the past one hundred and fifty years and is like to remain into the foreseeable future. Business Page recognizes that industries and entities within them die and sometimes others take their place so this column must not be seen as championing the cause of the dying industries and companies. It does however call for leadership of the economy and clear policies as to where we should be heading. It also calls for an open, honest dialogue involving the entire society about the state of our principal industries. There is no virtue in doing nothing or any rule that in the market economy businesses must be left on their own. In a number of articles over the past couple of years, Business Page has sought unsuccessfully to place on the agenda the issue of distressed businesses. In the October 22, 2000 issue we considered the specific challenges facing the rice industry in a fairly long piece (even by Business Page standards) titled Rice Loses its Flavour. In that article we sought to trace the recent problems confronting the sector and called for a concerted effort by all the key players in the sector to address the problems which we think call for short, medium and long term measures.

Readers interested in understanding the importance of rice to the economy and the country are referred to the Stabroek News of April 18, 1999 in which Dr. Patrick DeGroot, then President of Guyana Rice Millers and Exporters Development Association gave an excellent perspective of the sector.

The Rice Crisis Committee

In the October 2000 article under the caption The role of the Government, we noted "Not unexpectedly, the Government has done what all governments are good at doing - set up a committee, talk and attribute blame to others. President Jagdeo has emphatically come down on the side of the small farmers and seems to have accepted that many of the millers who owe large sums locally own huge assets abroad. This is an extremely serious charge by the President who is also the Minister of Finance and under whose responsibility the Revenue Authority falls. Since five large millers owe more than $9Bn it ought not to be too difficult for the extent and location of those assets to be determined given the tax treaties and tax information exchange agreement in place. These assets constitute property to be included in the Property Tax returns and the persons are by extension guilty of serious tax evasion.

The Rice Crisis Committee referred to in that Business Page had made a number of recommendations many of which have found favour with the bankers but so far except for the waiver of certain provisions of the Financial Institutions Act (FIA) and some substantial rescheduling by at least one of the commercial banks, the industry has received no (other) tangible support from the bankers or the government. It seems that the bankers are awaiting action by the government principally with respect to the FIA and tax exemptions on some of the interest and write back of provision following the restructuring.

The Committee has not met for some time and its strategy to transform some of its recommendations into concrete action is unclear. What is certain however is that the crisis in the industry has worsened with several major mills inactive and in receivership. The mountain of debts contracted by the industry is piling up higher even as the country faces another round of El Nino compounding the already formidable problems faced by farmers and millers alike. A decreased volume throughput will simply increase unit cost in the mills and increasing competition for paddy.

Phased Approach or Holistic Solution?

Even before the October 2000 article the government had signaled its preference to deal with the problem in a phased approach addressing first the debts of the small farmers (those with debts of less that G$10Mn.) and reviewing the position of the large farmers and millers subsequently. Many have criticized this approach not only for failing to accept that the problem is an industry-wide one and that the industry is an integrated whole requiring a comprehensive solution but also for the fact that it does not address the bigger issue of the sector's debt which can have severe implications not only for the industry but the banking sector as well.

It depends of course on how one perceives the problem and whether one considers the debt as a major issue. In that case, helping the small farmers who admittedly make up about 90% of the players in the industry will only address about 85% of the debt problem. If it is seen as an industry and economic problem then the role of the millers- however they may be perceived- cannot be overestimated.

The debts owing by the sector is a problem not only for that sector alone. One of the commercial banks has publicly declared that it has rescheduled some $3Bn. of debts to the sector. If these facilities fail to perform however, and the signs so far are not good, then common sense would dictate that the Bank would have to consider making substantial provisions which could severely affect both shareholders' as well as depositors' confidence with the domino effect on the rest of the banking sector and therefore the economy. As President Jagdeo is only too well aware debt rescheduling without relief and write off is merely postponing the day of reckoning. There are reasons to believe that the banks know this as well but it seems that without some clear signals from the government they are prepared to let leave the problem under the carpet and away from the knowledge of their shareholders, depositors and the public.

The government has so far done exactly as Business Page had predicted fifteen months ago -set up a committee, talk and blame others. In this issue no one is without blame - not the farmer, the miller, the banker or the government - but this is surely a sterile approach that retards any solution. Putting this aside for a while, one would have expected that by now the government would have already granted the promised relief to the small farmers. Such delay to deal with an important economic group as well as a major political constituency is incomprehensible. The process of implementation is simple enough and the bulk of the work will fall to banks while what is required by the government is the confirmation of its decisions and perhaps some amendments to the regulatory regime.

Sack Cloth & Ashes

One of the criticisms frequently leveled against the larger farmers and millers is their extravagant lifestyles. Anecdotal references to overseas assets, jetsetting and partying abound and are repeated by persons in the most irresponsible manner. I was told recently that at least 40% of the indebtedness of the big borrowers has been siphoned off into real estate and bank balances abroad. Business people are not saints and no doubt they have shipped funds abroad through various mechanisms. But we must not underestimate the effect of the policy of high interest rates pursued in the economy. We have had a cursory look at the indebtedness of some of the entities and find the interest component on the debt remains quite substantial even after significant interest payments. The compounded indebtedness of some of these entities is such that they will never be able to pay the interest let alone the indebtedness.

And even accepting the lifestyle accusation in some cases, they are surely a very small minority and those making the accusations ignore the long hours, hard work, extreme risk and admirable entrepreneurship of the majority which in better times gained national recognition. The moral outrage would be justified if in the face of these difficulties such extravagance continue but there is no evidence that this is so and certainly the state of their businesses would not permit it. That businessmen and women would want to protect their personal assets is a natural consequence of the limited liability corporation which has revolutionized the economics of business. Do we seriously want to reverse that and as one person has rhetorically asked should our large operators now be expected to travel around with sack cloth and ashes? This debate has also exposed the hypocrisy prevalent in this country where despite our admitted poverty our politicians drive some of the most expensive vehicles financed by the remissions and exemptions from taxes and duties payable by lesser mortals. Are not the ordinary taxpayers financing this lifestyle by the giving up of taxes otherwise due to the state?

Apparently the government is concerned about the level of tax relief being sought by the sector as the price for agreement. The government cannot be unaccustomed to the practice that people will ask for more while settling for less. If the Government's objection is its concern about the possible cost to the revenues of the country issue, then those concerns need to be addressed in a serious examination by all the parties. It is quite possible that the cost is much less than feared and if the economic and fiscal benefits were set against these, there may very well be a net gain to the economy.

Conclusion

The issue of the problems facing the sector were first raised by the late Mr. Fazal Ally in December 1999. We need to put the issues once again on the table and come up with realistic solutions which serve the interest of the country and not only individuals, that do not reward profligacy and extravagance, that deal with the issues rather than personalities, facts than innuendos and rumours and that set in place mechanisms that will prevent a repeat of this situation on such a frightening scale. And we need to do that with urgency. We have already spent over two years without any results.