Guyana - Overview of economy

Guyana is one of the poorest countries in South America, with a per capita income of US$4,800 in 2000 (figured at purchasing power parity ). After gaining independence from Great Britain in 1966, Guyana followed a socialist model of development. The bauxite, timber, and sugar industries were nationalized in the first half of the 1970s, and by 1976 the state controlled 75 percent of the country's economy. At the same time, regional integration was implemented through the Caribbean Common Market (CARICOM), the Latin American Economic

System (SELA), and the Caribbean Merchant Fleet. In 1980 Guyana granted authorization for transnational corporations to carry out oil and uranium explorations.

By 1988 the government controlled over 80 percent of recorded import and export trade and 85 percent of total investment. The government attempted to set prices and fix the exchange rate for currency. With inflation , prices and the exchange rate were soon rendered unrealistically low. At the low prices, more commodities and more foreign exchange were demanded than could be supplied. There were shortages of supplies, and the government instituted a system of rationing. Unofficial markets (some-times called parallel or black markets ) emerged, where the rationed commodities and foreign exchange could be purchased, but at prices higher than the official prices. During the 1980s the real gross domestic product (GDP) continually declined, falling at a yearly average of 2.8 percent, mainly due to economic mismanagement. With the rising share of foreign interest payments, gross national income declined at an even faster rate of 4.9 percent a year.

Technical, organizational, and financial problems in Guyana's key sectors (sugar, rice, and bauxite production) and falling world demand led to stagnation in output and a consequent decline in government revenues in the late 1980s. Inflation accelerated, and there was an increased reliance on external borrowing. While new investments were being made in the public industrial sector, the nation's infrastructure was being neglected and steadily deteriorated.

By 1988 output was only 68 percent of the 1976 level. Since Guyana's external debt is denominated in U.S. dollars, if the exchange rate is reduced (such as by the devaluation in 1989), the value of the debt expressed in Guyanese dollars increases. In 1989, total debt become over 600 percent of the GDP. The severe decline in living standards led to a major migration of talented Guyanese to lucrative jobs abroad.

In 1988, the government adopted an Economic Recovery Program (ERP) that called for a major redirection in government policy. Specifically, there was a greatly reduced role in the economy by the public sector and a removal of price and exchange controls that led to shortages and unofficial markets.

Few countries have undertaken such a dramatic turnaround in economic policies, and even fewer have implemented such a program with so much speed and determination. Because of the government's efforts, a support group of donors was organized, and Guyana was able to secure financing to clear debts to the multilateral agencies. The government was also able to agree with the International Monetary Fund (IMF), the World Bank, and the Caribbean Development Bank (CDB) on major programs of support. Guyana also reached agreement with the Paris Club (a group of creditor countries who lend to developing countries) on a major program of debt relief .

The government has continued to implement the ERP despite the 1998 drought that severely affected the economy. The GDP growth in 1997 was estimated at 6.3 percent. However, the drought caused the growth rate to fall to-1.5 percent in 1998, but there has been a modest recovery to 1.8 percent in 1999 and 3 percent in 2000.