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Guyana Absorbing the Parallel Market
The second major objective of the ERP was to absorb the
parallel market into the legal economy. The parallel market was
seen as denying tax revenues to the government, adding to
inflationary pressures through uncontrolled currency trading, and
generally encouraging illegal activity in Guyana. By liberalizing
foreign exchange and other regulations, the government began to
make inroads into the illegal economy. The 1989 Foreign Currency
Act allowed licensed dealers to exchange Guyanese dollars for
foreign currency at market-determined rates. By 1990, more than
twenty licensed exchange houses operated in Georgetown, taking the
place of some illegal currency traders.
A related policy focused on the exchange rates. The government
began devaluing the Guyanese dollar so that the official exchange
rate would eventually match the market rate. This devaluation
process was an essential feature of the recovery program. It not
only targeted the parallel economy but also improved the country's
export competitiveness. But the devaluations were painful for
consumers. In April 1989, the government changed the official
exchange rate per United States dollar from G$10 to G$33, instantly
tripling the domestic currency price of most imports. The
unofficial exchange rate at that time was reportedly G$60 per
United States dollar, so the Guyanese dollar was still overvalued
at the official rate. As of mid-1990, the disparity between the two
rates persisted: the official rate was G$45 but the unofficial rate
(at the now legal exchange houses) was G$80 per United States
dollar. An important milestone was reached in early 1991 when
Guyana adopted a floating exchange, removing the distinction
between the official and the market exchange rates. The Guyanese
dollar stabilized at US$1=G$125 in June 1991.
Data as of January 1992
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