Interview with Prime Minister, Manuel Esquivel

'We need correct a situation that has gone terribly wrong. In the process, everybody will have to make sacrifices'

For the second time, Manuel Esquiver finds himself presiding over Belize's destiny following the victory of his UDP at the polls in July 1993. He first gained office in 1984 during the economic 'golden age' of this small Central American country. But things are different nowadays. Belize may still be in an enviable position relative to many of its neighbours in the region, if one considers the social indicators and the strength of its democratic system, but it has not been able to avoid the negative effects of the global economic crisis. This is not perhaps surprising given its dependence on its powerful neighbour, the USA, which was also recently battered by recession. Manuel Esquivel wants, at all costs, to maintain the value of the Belize dollar and has decided to 'roll back the frontiers of the state' This entails a dose of strong medicine which he must persuade his fellow citizens to swallow. Thus far, he has at least some results to show for his efforts in the form of a significant reduction in inflation.

Unfortunately, growing unemployment and the people's reduced purchasing power threaten to undermine what has been achieved. There is also the problem of public discontent prompted by the government's austerity policies, not to mention potentially destabilising disputes within the government itself. On top of all this, despite a general feeling of harmony among the different groups who make up Belize's population, discontent has emerged within the Garifuna (black Amerindian) community. Members of this ethnic group, who are well organised, are resolutely opposed to government policies which they regard as contrary to their interests. Another area of worry is the ongoing diplomatic dispute with Guatemala which concerns no less than the legitimacy of the Belize state itself.

Belize may not be the best known ACP country but this does not make it any the less interesting, as we discovered when we spoke to Prime Minister Esquivel. In a wide-ranging interview, we discussed the above mentioned problems as well as some of the notable achievements of this relative haven of prosperity in the region.

· What are currently the main concerns of Belize and what are your most important goals ?

-Our main concerns are within the government itself. We are very concerned about the size of the government deficit so we are putting a lot of energy into finding ways of reducing and indeed eliminating it by next year. In that connection, we have several difficulties. In particular, our debt servicing has ballooned. This problem began last year and debt servicing will continue to be very high for at least the next two years. This is due to the fact that in the early 1990s, Belize entered into a number of credit arrangements with commercial banks. These are now having to be repaid and, as a result, debt servicing now absorbs about 20% of our recurrent revenue.

· So you consider that these problems result from actions of the previous government ?

-As regards these commercial loans. We try to confine our commitments to official loans for obvious reasons, but there was a departure from this approach. The result is a new stock of commercial debt that has caused our debt servicing to increase by about 30%. That will remain the case for the next two or three years.

Some newspapers and people in the opposition argue that the economic situation was good when you took over but now the economy is in decline. What is your answer to that accusation ?

-I would say that the situation appeared to be good at the time because there was a lot of government spending. But this was creating a deficit which was unsustainable. At the outset, that deficit was sustained by privatisation. Shares in the telephone and electricity companies were sold off. But obviously, that kind of financing cannot sustain a deficit in the longer term. It can only alleviate the problem from year to year. So the deficit has built up. There were also commitments made to the unions representing the teachers and the public service to increase salaries at a rate of 12.5 % per annum over a three-year period. This has meant that our wage bill now exceeds 50% of government revenue. When you put the wage bill and debt servicing together, you find that more than 70% of the state's income is being absorbed. This has created a tremendous problem with cash flow and with financing the deficit that has built up.

What we have done is severely to reduce government capital expenditure to try to restrain the growth of the deficit. Additionally, we are trying to find ways of restraining the growth in the wages bill. In practice, this means we are not able to meet all the heavy commitments entered into by the previous government. We provided half of those payments in 1994. The policy also involves proposing to the unions at this time that there should be a freeze on wages for the next two years.

The private sector is performing very well. Our exports are up. Because of various monetary measures, our imports have been reduced slightly, so we have reduced the trade deficit. But the government deficit remains the big headache. The government cannot function, cannot supply services, and cannot provide capital expenditure, so long as its domestic debt is the size it is. I am not talking here about foreign debt which has always been in deficit. I am talking about domestic capital expenditure which, in the past was sustained by government's own revenues. In the last two years it has been sustained, as said, by a combination of asset sales and domestic borrowing. And this is a quite crippling situation.

'A commitment to the entire economy must take precedence'

· When you came to power, you promised lower taxes and held out the possibility of higher wages. Do you not find yourself in an awkward position with the electorate now that wages are frozen and taxes seem to be increasing ?

-We have, in fact, reduced income taxes for everyone and have eliminated them altogether for people who earn less than B$200 a week. So we have kept that promise. The essential point here, however, is that the public service is just one segment of the economy. We believe that a commitment to the entire economy must take precedence over any previous commitments to just one sector, particularly where the effect is that the rest of the economy is being hurt. High government wages, even in times of prosperity, are unsustainable. They eventually do damage to the wider economy. The government should not be the most expensive organisation in the country. lt has to be as efficient as possible and pay realistic wages. When the government increases wages by almost 40% in three years, that has repercussions for the rest of the economy. There are pressures for other employers to do the same and that causes inflation, creates difficulties for investment, dries up investment capital and generally sends everything into a tailspin.

· What about the impact of your policies on private business. They are paying an extra 1% in tax. The same is true for the professions-doctors, engineers and so on. They have to pay 2% more and they can't pass this on to the consumer. Is this not likely to hit them hard in a situation where competition is fierce ?

-Obviously. But the question is, are we going to undergo the pain now and solve the problem, or will we do nothing. If we choose the latter, many of them will eventually be bankrupted. There will be a devaluation with all the negative consequences that flow from that. The point is that we need to correct a situation that has gone terribly wrong. In the correcting process, everybody will have to make sacrifices. The choice is between making the sacrifice to achieve the results, and not making the sacrifice in which case, we can just watch the economy go down the drain.

· What measures does your government plan to take to encourage investment in the country ?

-The first thing is to make clear that one of our primary objectives is the stability of the currency. We think that an unstable currency creates an atmosphere that is least conducive to investment. Secondly, we have to make sure that capital is available for investment at reasonable cost. It cannot be made available so long as the government is the principal borrower in the economy. The state absorbs funds that are needed for investment and puts them into nonproductive activities. This effectively deprives investors of the capital they need. And we certainly want to encourage domestic investment in the economy. That is why, in the short term, we have to take measures to eliminate the government debt, freeing up the banking system so that it can begin to finance investment in the country. As far as foreign investment is concerned, we have had for a long time, a programme of development incentives which includes tax holidays and freedom from import duties for export businesses.

· It seems that the authorities have cancelled some of the commitments entered into by the previous government Two examples I have come across are the 'Hydro-electric project 'and the 'Milk plan'. Is there not a danger that this kind of action might affect the credibility of the country, and prove offputting to foreign business people who might be considering investing here ?

-Let me explain what we have done. The arrangements that the previous government made in respect of the two projects you mention were, in fact, quite disgraceful. In the case of the hydro project, we have managed to rewrite the terms more-although not completely- to our satisfaction. As a result, we estimate that over the life of the project, which is 40 years, the country will save about $100 million overall. We think it was worth the fight to get that changed. As regards the milk project, the arrangement was essentially that the government should pay for it. The government was to reduce excise duties on beer by 50% to allow a company to produce milk. We certainly do not see any reason why the government should be paying for the project. I should say we have done nothing to stop it. They have a development concession which includes tax breaks and exemptions from import duties. But at the end of the day, it is a private business and it is for them to make the investment, not the government.

· There are apparently some disagreements within the government: reports of a dispute between Hubert Elrington and the Deputy Prime Minister Dean Barrow. Are you worried that this lack of unity might be damaging to the administration ?

-I don't know that it is necessarily a bad thing. In all political parties and all governments, people have differing opinions. If everyone had the same view, we would stagnate. So I think in fact it illustrates the openness and democracy that exists within the government. People are able to express their ideas freely and to put their points of view forward. I don't see that as a bad thing at all.

· Turning to foreign policy, what is the current status of the dispute with Guatemala. Is it now over ?

- No, because while Guatemala has accepted our independence, they still do not recognise our borders. Until they are prepared to do that, we will have a problem. The situation at the moment is calm and there are friendly relations between us. In fact, the current government in Guatemala is something of a 'lame duck' for two reasons. It was not elected and, in any case, its term of office expires towards the end of this year. Because of this, we do not foresee anything significant happening towards solving the problem, at least in the short term.

· But don't you have the support of virtually all the countries in the region who accept the position of Belize ?

-No they don't

· Are you saying that some have supported Guatemala ?

-No, but they have no view on the border issue. None of them has come forward, including the United States, to say that they accept the territorial boundaries of Belize. Yes, they support our independence. That is very clear. So does Guatemala. But when it come to 'what is Belize', there is no agreement. And I am not sure that we can count on support from anyone on this issue, in the way that we could for our independence. I don't think anybody will get involved in the question of what is Belize's territorial boundary.

· So how do you think the master can be resolved ?

-From our point of view, the territorial boundaries of Belize are not a matter for discussion, so I don't know how it will be resolved. I think it can only be concluded by a change of attitude in Guatemala City. Having accepted our independence, it should follow that they accept the boundaries as set out in our independence constitution.

· And do you think the fact that the British forces have left will make it more difficult for you ?

-I think at the moment that everything is on a diplomatic rather than a military level. So I don't see that the departure of the British is going to have that effect. The effect it does have, however, is to encourage adventurism on the border because people may feel we are unable to react. We expect there will incursions of civilians from time to time, and that this will be supported by political elements within Guatemala. There was a case in point last year. We were engaged for the greater part of six months in getting Guatemala to assist in removing a hundred Guatemalan families from our territory. But I think we have demonstrated that we will be very firm where that is concerned.

· In similar situations, a solution has been found through the United Nations or the International Court of Justice. Do you not think you could use this possibility to reach a solution more quickly - pushing Guatemala to accept your boundaries.

- Firstly, I don't think Guatemala sees that as an option. They consider it a constitutional matter on their side and therefore would not subject themselves to that. Secondly, I don't think anybody really cares about this kind of border issue. They care about independence, but as to where a country begins and ends on a map is not of much concern to anyone.

· For Belize whet are the most important areas of foreign policy-your relations with the United States, Central America, Caricom, Europe or what ?

-Obviously, relations with the USA will always be of great importance to us and everyone else in this hemisphere. Events like the Summit of the Americas are a clear indication of this. Our primary and long-standing relationship is with the English-speaking Caribbean and we are continuing to foster that through our membership of Caricom. Our relationships with Mexico have always been excellent and we will certainly try to do everything we can to maintain that. As for our links with Central America, these have improved considerably over the last year, now that the Central Americans have accepted the idea of Belize's independence. As you rightly say, they have not supported Guatemala in any suggestion of excluding Belize from the Central American arena. In fact, our inclusion has been consolidated day by day, with no objections from Guatemala.

As for Europe, as you know, we have some difficulties, particularly with regard to the banana regime. Europe itself is divided on this issue. Our relationship with the EU is, by and large, one with the United Kingdom. As regards the other EU countries, there are some with whom we have hardly any relations - not in a negative sense-but just as a matter of fact. There are others with whom we have some exchanges-a little bit of trading and perhaps technical assistance, and we hope to keep building these links.

Belize appears largely to have achieved a sense of unity but there seems to be some problem with the Garifuna people. Is this significant ?

-I don't believe so. Any minority group will always feel that more should be done, and perhaps justly so. But you will also get elements within any group that will attribute failings or problems to the fact of their ethnicity rather than to other factors. I think the Garifuna people have, in fact, come an extremely long way in terms of their image and acceptance among the rest of the community. The Garifuna people are to be seen in all walks of life whether in the private sector or the government. Anybody who sees the difficulties as something which stem from attachment to a particular ethnic grouping is, I think, probably not looking at the whole picture.

· What about the specific issue of the monument to the Garifuna people and the surrounding land ? With only 200 000 people in Belize there is a lot of empty land that could be used.

-Well there are several factors here. That land was acquired by displacing Garifuna people. It was taken away from people who traditionally farmed in that area and we feel that that was an injustice. But there are, within the Garifuna community, just as many people who are convinced that if it is a competition between people's access to land and homes, and a monument, they would rather choose the former. As for the point that there is a lot of land available elsewhere, that fails to recognise the fact that one has to have access to utilities such as water and electricity. It is not logical just to say that there is plenty of land available. That is not a sufficient base on which to build a community.

'We need to be prepared for the era of trade liberalisation'

· Finally, can you recapitulate your key objectives for Belize ?

-As I said, we need first to straighten out the government's financial position. Government must extract itself from the private economy. We must get out of the way of the private sector by eliminating our domestic debt. In addition, we obviously need to be prepared for the era of trade liberalisation. This has the potential for great benefits but also for a great deal of damage to our economy. We are, therefore, seeking alliances-with our traditional partners such as Caricom and with non-traditional partners such as the Central American countries - to better prepare ourselves to deal with the challenge. It is particularly important in the field of agriculture. A totally free market could easily disrupt our domestic agricultural activity, perhaps beyond repair. So we aim to ensure that we develop the markets that must be developed in the region, to give our farmers more export outlets. Once foreign agricultural products are freely able to invade the domestic market, the only solution is for us to penetrate external ones. We have very little time, but through these alliances mentioned, we have a lot of skill available to us in the region to help us accomplish this objective.

The overall message must be that the government has a very serious situation to correct. To do that, it has to take measures which will be painful. But the bottom line is that if you take the measures and suffer the pain now, you can solve the problem. If you carry on as if there is no problem, then you finally end up in a much worse situation. Fundamental common sense dictates that we must act immediately, even if there is a cost attached, so that we can move forward in the shortest possible time.