The Multinational Monitor


G L O B A L   S I G H T I N G S

Guyana, Aid Agencies Strike Bargain

After nearly eight years of heated debates, the World Bank and the government of Guyana Prime Minister Forbes Burnham have reached preliminary agreement on construction of a massive hydroelectric power-aluminum smelting facility on the Upper Mazaruni River. The tentative approval of the project- expected to cost $1.5 billion-- represents the latest and most significant step in the rapprochement between Guyana and Western investors and multilateral lenders.

Guyana has been on particularly bad terms with multinational investors since 1971, when Burnham nationalized the bauxite industry, seizing 100 percent ownership of the Canadian aluminum giant Alcan's subsidiary, and then bargaining hard on compensation terms. The, lnternational Monetary Fund (IMF)-sister organization of the World Bank-also recently criticized the Guyanese government for its failure to meet the economic guidelines established in a loan agreement negotiated last year.

Now, as Burnham's increasingly repressive government faces growing radical mass opposition, and Western governments-particularly the United States-grow anxious about political developments throughout the Caribbean region, a major bargain has been struck. At a June meeting of the World Bank's Caribbean Group for Cooperation and Economic Development, the Bank announced its willingness to raise funds for the project from both private and public lenders, and gave Guyana an initial $23 million loan, part of which will be used to conduct a final feasibility study of the project. In return, Guyana has agreed to a new IMF stand-by program that includes additional wage controls, cutbacks in consumer subsidies and a more flexible attitude toward foreign investment.

Supporters of the Upper Mazaruni project stress that it will enable Guyana to establish a vertically-integrated bauxite/aluminum industry, and that the excess capacity generated will encourage industrial development in the outlying regions.

Opponents argue that the project is technically unsound, due to the distance the electricity will have to travel to reach the population and industrial centers on the country's Caribbean coast. Others, such as the anthropology group Survival International, have expressed concern over the impact the required road construction and flooding in the area will have on the Akawayo Indian tribe.

More central, however, have been the criticisms of the role such a dam-smelter project will play in Guyanese economic development. Several earlier feasibility studies conducted by European firms judged the Upper Mazaruni project "too large" for this economy of 850,000 people, both in terms of its output and the required finance. In order to finance the dam and smelter, critics contend, Burnham will have to mortgage the country to foreign investors.

"Guyana will have to do whatever it takes to make the smelter project attractive to potential investors. Whether the country would have to give up ownership of the mines, or existing facilities for alumina production-all these things will be subject to negotiation," says John Callahan, World Bank engineer for the project. A number of leading aluminum companies-including Guyana's old nemesis Alcan -have already been approached to participate. One leading Guyanese economist predicts that given the political instability of the country and Burnham's history of opposition to foreign investment, no company will invest in the smelter project unless granted exorbitant profit rates--perhaps as high as 45 percent.

The World Bank/IMF's vote of support after years of criticism of Guyana's economic program and the Upper Mazaruni proposal represents a sudden turnaround. While Bank officials explain the move by pointing to their "new interest in helping Third World economies deal with the pressures of increased prices by providing them with alternative sources of power," critics of the Bank and Fund place their action in a much more narrowly defined political context. Christoper Conybeare of EPICA, the U.S.-based political action group, says, "The World Bank and the Fund don't want an independent energy source as )much as they want a dependent government. The Mazaruni project may temporarily bolster the government of Forbes Burnham, but as far as the Guyanese people are concerned, it's a ripoff."

- Krystyna von Henneberg

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