GUYANA'S ECONOMY WAS IN DIRE CONDITION in the early 1990s. When the country gained independence in 1966, it was one of the least developed areas in the Western Hemisphere. In the 1970s and 1980s, the economy deteriorated further after the government nationalized foreign-owned companies and took control of almost all economic activity. Output of bauxite, sugar, and rice--the country's three main products--fell sharply. Guyana's gross domestic product (GDP reflected the decline in output. Real GDP fell during the late 1970s and decreased by an estimated 6 percent per year during the 1980s. The fall in GDP in terms of United States dollars was even more dramatic because of repeated devaluations of the Guyanese dollar (for value of the Guyanese dollar). In 1990 the GDP was only US$275 million. Per capita GDP amounted to less than US$369 per capita, making Guyana one of the poorest countries in the hemisphere.
Declining GDP was but one symptom of the malaise that had overcome Guyana's economy in the 1980s. Other indications were the nation's crumbling infrastructure, especially the electrical power supply; the high level of external debt and payments arrears; and the emigration of professionals and skilled workers. Conditions were harsh for the roughly 764,000 people living in the country. In 1990 an estimated 40 percent of workers earned the minimum wage, equivalent to only US$0.5 per day. Three factors--the flourishing illegal economy, the cash remittances that Guyanese citizens received from relatives living abroad, and the country's near selfsufficiency in food production--were all that kept the economic decline from becoming a disaster.
But in the early 1990s, there were signs that twenty years of stagnation and decline could be ending. The government of Guyana was at last coming to grips with the deep economic crisis. The economy's performance had not yet recovered, but the government was dismantling statist policies and opening up the country to foreign investment.
There were two principal reasons for the dramatic policy reversal. The first reason was the death in 1985 of then-President Linden Forbes Burnham, who had been in power since the mid-1960s. Burnham refused to recognize the ill effects of "cooperative" socialism, which he had designed. The second reason for the reversal was Guyana's debt. President Hugh Desmond Hoyte, Burnham's successor, inherited a tremendous external debt burden and large debt payment arrears. By 1988 those arrears exceeded US$885 million (equal to four times the country's annual exports), and Guyana's international creditors had exhausted their patience. Hoyte faced the stark alternatives of having all credit to his country cut off or enacting a package of reforms approved by the International Monetary Fund (IMF). He chose the latter option, launching an ambitious Economic Recovery Program (ERP) in 1988 with the goal of dismantling Guyana's socialist economy and ending the country's self-imposed isolation. "My single ambition," Hoyte told the Financial Times in 1989, "is to put this economy right. I want to put it on the path to recovery."
Guyana's economy was still far from recovery in 1991, but the Hoyte government's commitment to reform was clear. The government had cut its budget deficit (in real terms), removed most price controls, legalized foreign currency trading, liberalized trade regulations, encouraged foreign investment, and had begun privatizing state-owned companies. In early 1991, the official and market exchange rates were unified for the first time since independence. Market forces were replacing state intervention; incentives to private individuals were replacing government regulations. Foreign investors appeared ready to tap Guyana's considerable natural resource potential.
Economic reform still faced formidable obstacles, however. Chief among these was the shortage of financial resources to improve the nation's infrastructure and rebuild its productive base. The IMF and other international creditors had refinanced the debt, propping up the financial side of the economy. But Guyana needed additional loans--even though its debt burden was already huge--so that the productive side of the economy could be rebuilt. A second obstacle was the social cost of the government's austerity plan. Guyanese citizens could ill afford to receive lower wages or pay higher taxes to help eliminate the budget deficit. Thus, Guyana needed international assistance for humanitarian as well as economic reasons. For the government then, the economic reform program posed two sizable challenges: to maintain the political initiative at home and to garner the continued support of the international financial community.
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