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Guyana Normalizing International Financial Relations
Even more pressing than the public sector deficit was Guyana's
balance of payments shortfall. The extent of the problem was
indicated by the overall balance of payments, which was a record of
the flow of goods, services, and capital between Guyana and the
rest of the world. The deficit in the current account had increased
during the early 1980s, reaching almost 50 percent of GDP in 1986.
In effect, this meant that Guyana was receiving more goods and
services from the rest of the world than it was providing and was
having to pay for the difference. The government paid part of this
deficit by using reserves such as stocks of gold. But part of the
deficit went unpaid when reserves became depleted. This unpaid
portion was critical. Referred to as "external payment arrears," it
marked Guyana as a bad credit risk, threatening to completely
undermine Guyana's ability to obtain even short-term trade credits
from abroad. Accumulated external payment arrears had expanded to
almost three times Guyana's official GDP by 1988.
The Hoyte government attempted to decrease the balance of
payments deficit by increasing exports and limiting imports;
Guyana's trade was close to balanced in 1988, but a sizable trade
deficit again appeared in 1990. Low productivity meant that exports
did not expand significantly, and the government lacked the
resources needed to eliminate the external payments arrears.
Therefore, an agreement with the country's foreign creditors was
crucial.
The IMF and the
World Bank (see Glossary)
played a vital role
in devising Guyana's economic reform program. The two institutions
also helped ensure that the government implemented the planned
reforms.
The IMF had curtailed all further lending to Guyana beginning
in 1983, because payments on previous loans were overdue. In 1988
the IMF worked with government representatives to draft a reform
plan, with the understanding that economic reform within Guyana
would lead to renewed international financial support for the
country. IMF support was important not only for the resources the
institution could provide but also because many other lenders, such
as commercial banks and foreign governments, waited for IMF
approval before making loans.
In 1989, after Guyana's government had shown a commitment to
restructuring the economy, the IMF and the World Bank helped
eliminate the external payments arrears. A so-called Donor Support
Group led by Canada and the Bank for International Settlements paid
US$180 million to enable Guyana to repay arrears. The IMF, the
World Bank, and the Caribbean Development Bank then refinanced this
amount, essentially replacing Guyana's overdue payments with a new
long-term loan. The elimination of the longstanding external
payments arrears cleared the way for Guyana to borrow abroad if
necessary and allowed it to reschedule other external debts on more
favorable terms
(see Foreign Debt
, this ch.).
Data as of January 1992
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