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Guyana Parallel Economy
A growing share of economic activity in Guyana took place
outside of the official economy in the 1980s. The rise of the socalled parallel market was alarming for several reasons. In general
terms, the parallel economy, or black market, was harmful because
it indicated that the official economy was not providing enough
goods and services, and that a "norm of illegality" existed in
Guyana. More specifically, the illegal economy drained talent and
initiative from the official economy, deprived the government of
tax revenues, and led to inefficient use of resources. In addition,
the parallel market was considered a major source of inflation and
currency instability.
The size of Guyana's parallel economy was difficult to estimate
because illegal traders and businessmen kept a low profile to avoid
both foreign currency regulations and taxation. The Financial
Times and the Economist both estimated in 1989 that the
parallel market carried out between US$50 million and US$100
million worth of business annually. By the higher estimate, the
parallel economy was about one-third the size of the official
economy. Economist Clive Thomas argued in various studies that the
parallel economy ranged from one-half to roughly the same size as
the official economy.
The key feature of the illegal economy was foreign currency
trading, an activity that arose when the government began
restricting legal access to foreign exchange. When it introduced
foreign exchange controls in the late 1970s, the government was
trying to keep Guyana's balance of payments from worsening by
controlling the flow of money and goods to and from the country
(see Balance of Payments
, this ch.). The government also had to
restrict access to foreign currency in order to maintain an
overvalued exchange rate. If Guyanese citizens had had unlimited
access to foreign currency, many of them would have bought United
States dollars, depleting Guyana's foreign exchange reserves,
because of their anticipation of devaluations of the Guyanese
dollar.
The restriction on foreign exchange helped maintain the fixed
exchange rate but it also created a shortage of foreign currency,
making it nearly impossible for individuals and businesses to
import essential items (foreign merchants would not accept Guyanese
dollars). Street traders filled the gap by supplying much-needed
foreign currency; they made a profit by selling foreign currencies
at a high price. Thus, the black market exchange rate per United
States dollar was about G$60 in early 1989, compared with the
official rate of G$33. The Economist reported in mid-1990
that brick-sized stacks of G$100 bills were trading for US$1,000 on
Georgetown's America Street, dubbed "Wall Street."
The largest currency traders in the country, known as the Big
Six, set the parallel exchange rate on a weekly or daily basis by
tracking supply and demand, according to Thomas. There were several
sources of the foreign currency supply: illegal exports of gold,
diamonds, rice, sugar, shrimp, and furniture; cash remittances from
abroad; unrecorded expenditures by tourists and visitors;
overinvoicing of imports; and sales of illegal drugs. Demand for
foreign currency came primarily from three groups: local producers
or retailers needing to import foreign materials or merchandise,
investors and savers seeking a safe haven against devaluation of
the local currency, and people exchanging local currency because
they planned to leave Guyana temporarily or permanently. There was
a close relationship between foreign currency trading and other
illegal activities such as smuggling, tax evasion, and narcotics
sales.
The government responded ambivalently to the parallel market.
Official policy restricted illegal economic activity, but in
practice, the government often turned a blind eye to the welldeveloped parallel economy. Government attempts to repress the
illegal market, as in the early 1980s, were unsuccessful. Guyana's
borders were long and unpatrolled, making smuggling relatively
easy. In addition, cash remittances from abroad were common,
meaning that many people in Guyana had frequent access to foreign
currency and could easily trade on the parallel market. Many
observers also noted that the government tolerated the parallel
market because it provided goods that were restricted but
essential. In fact, even state-owned companies traded on the
parallel market.
A fundamental shift in policy toward the parallel economy
occurred in the late 1980s, when the Hoyte government began
stressing the need for a revitalized private sector. To many people
in Guyana, as well as in the international financial community, the
existing parallel market was the epitome of private sector
initiative under difficult conditions. The Hoyte government
signaled a measure of agreement with this view in 1989 when it
legalized and regulated the parallel foreign currency market. The
government's aim was to eliminate the illegal economy by absorbing
it into the legal economy.
Data as of January 1992
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