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Guyana Postindependence
Guyana achieved political independence in 1966, but economic
independence did not immediately follow. Most decisions affecting
the economy continued to be made abroad because foreign companies
owned most of the agricultural and mining enterprises. Two British
companies, Booker McConnell and Jessel Securities, controlled the
largest sugar estates and exerted a great deal of influence on the
nation. In the early 1970s, the Booker McConnell company alone
accounted for almost one-third of Guyana's gross national product
(GNP--see Glossary).
The company produced 85 percent of Guyana's
sugar, employed 13 percent of the work force, and took in 35
percent of the country's foreign exchange earnings.
Two other foreign companies dominated the mining sector: the
Demerara Bauxite Company (Demba), a subsidiary of the Aluminum
Company of Canada (Alcan); and the Reynolds Bauxite Company, a
subsidiary of the Reynolds Metals Company of the United States.
Together these firms accounted for 45 percent of the nation's
foreign exchange earnings. Foreign companies also controlled the
major banks.
The Burnham government, which took office in 1964, saw
continued foreign domination of the economy as an obstacle to
progress
(see Independence and the Burnham Era
, ch. 1). As
economist DeLisle Worrell pointed out, foreign ownership was
considered the root cause of local economic difficulties. Emerging
nations of the Caribbean region shared this viewpoint, which was
supported by a number of arguments. Foreign-owned companies were
said to use inappropriate production technologies in the Caribbean.
These technologies were capital intensive, rather than labor
intensive, because they had been developed for the industrialized
world. Thus, local unemployment remained higher than necessary.
Furthermore, local economies were geared to producing only primary
products (sugar and bauxite in Guyana) rather than value-added
products (processed foods and aluminum parts, for example). Guyana
sold its inexpensive primary products abroad at world market prices
that made local economies vulnerable to international price swings.
At the same time, local economies had to import expensive products,
such as machinery, because most small, less-developed countries had
no manufacturing base.
According to critics of the country's economic system, foreign
companies were satisfied with the existing arrangements and had no
incentive to develop the local economies. In short, foreign control
was stifling regional aspirations. Many people in Caribbean
countries, particularly those with left-leaning political
sympathies, called for government control of the economies.
The government moved vigorously to take control of the economy.
In 1970 Burnham proclaimed Guyana as the world's first "cooperative
republic." He said that the country would continue to welcome
foreign investors but that the government would own at least 51
percent of any enterprise operating in Guyana. The Burnham
government originally planned not to exceed this 51 percent
ownership; it wanted majority control of the companies but wanted
to maintain foreign management teams and the flow of foreign
investment. In practice, however, major foreign companies balked at
the idea of shared ownership, and the Burnham government took
complete control of the economy, eliminating both foreign ownership
and foreign management.
During the 1970s, Guyana nationalized the major companies
operating in the country. Demba became a state-owned corporation in
1971. Three years later, the government took over the Reynolds
Bauxite Company. The Burnham government then turned its attention
to the sugar industry. Some observers say the latter move was
largely for political reasons; they say the Burnham government was
seeking to extend its base of support among Indo-Guyanese sugar
laborers
(see The Cooperative Republic
, ch. 1). Guyana nationalized
Jessel Securities in 1975 after the company began laying off
workers to cut costs. In 1976 the government nationalized the huge
Booker McConnell company. By the late 1970s, the government
controlled over 80 percent of the economy.
Nationalization of large foreign companies was but one aspect
of pervasive government control of economic activity. By the early
1980s, the government had also taken over the bulk of the retailing
and distribution systems. It controlled the marketing of all
exports, even those few products, such as rice, which were still
produced privately. It owned all but two financial institutions and
tightly regulated currency exchange. The government controlled
prices and even attempted to dictate patterns of consumption by
banning a wide range of consumer imports. Local substitutes for
even the most basic imports were proposed, such as rice flour for
imported wheat flour.
The nationalized economy at first appeared to be performing
well. During the early 1970s, world prices of both sugar and
bauxite rose, allowing the newly nationalized enterprises to reap
sizable profits. Increased government spending helped stimulate the
economy, and GDP grew at about 4 percent per year from 1970 to
1975.
In the late 1970s and early 1980s, however, the world commodity
prices that had favored Guyana declined, reversing the earlier
gains. Economic output dropped as demand for sugar and bauxite
fell. Nonetheless, government spending continued at a high rate,
and Guyana was forced to begin borrowing abroad. This pattern of
declining GDP, continued high levels of government spending, and
foreign borrowing was common throughout Latin America in the 1980s.
Guyana's economic decline grew more acute during the 1980s.
Unfavorable world prices were only part of the problem. There were
two more basic difficulties: the lack of local managers capable of
running the large agricultural and mining enterprises, and the lack
of investment in those enterprises as government resources were
depleted. Bauxite production, which had dropped from 3 million tons
per year in the 1960s to 2 million tons in 1971, fell to 1.3
million tons by 1988 (see
table 7, Appendix A). Similarly, sugar
production declined from 330,000 tons in 1976 to about 245,000 tons
in the mid-1980s, and had declined to 168,000 tons by 1988. Rice
production never again reached its 1977 peak of 210,000 tons. By
1988, national output of rice was almost 40 percent lower than in
1977.
The decline in productivity was a serious problem, and the
Burnham government's reaction to the downturn aggravated the
situation. As export revenues fell, foreign exchange became scarce.
Rather than attacking the root of the problem, low domestic output,
the government attempted to ration foreign exchange. The government
regulated all transactions requiring foreign exchange and severely
restricted imports. These controls created their own inefficiencies
and shortages. More significantly, tight government control
encouraged the growth of a large parallel market
(see Parallel Economy
, this ch.). Smugglers brought in illegal imports, and
currency traders circumvented government controls on foreign
exchange. Although many citizens began working and trading in the
parallel economy, many others were leaving the country. An
estimated 72,000 Guyanese, almost one-tenth of the population,
emigrated between 1976 and 1981
(see Emigration
, ch. 2). Among
those who left the country were many of the most skilled managers
and entrepreneurs. Finally, the hostile political orientation of
the Burnham government foreclosed the possibility of aid from the
United States
(see Relations with the United States
, ch. 4).
The crisis finally came to a head in the late 1980s because of
Guyana's unsustainable foreign debt. As export revenues fell, the
government began borrowing abroad to finance the purchase of
essential imports. External debt ballooned to US$1.7 billion by
1988, almost six times as large as Guyana's official GDP. Because
the government funneled the borrowed money into consumption rather
than productive investment, Guyana's economy did not grow out of
debt. Instead, the government became increasingly unable to meet
its debt obligations. Overdue payments, or arrears, reached a
staggering US$1 billion in 1988. Rather than risk a curtailment of
all foreign credit (even short-term loans for imported machinery
and merchandise), the Hoyte government embarked on an IMF-backed
austerity and recovery program. The Economic Reform Program (ERP)
introduced in 1988 amounted to a reversal of the statist policies
that had dominated Guyana's economy for two decades
(see Government Policy
, this ch.).
Data as of January 1992
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