Guyana: The Economy
Worker harvesting rice
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-- see Glossary)
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--see Glossary).
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 (see
table 6, Appendix A).
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
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
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.
Data as of January 1992