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Guyana

 
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Guyana

Foreign Debt

In the early 1990s, Guyana was one of the world's most heavily indebted countries. Its external debt burden was almost US$2 billion in 1990, or about seven times official GDP. The debt burden accumulated in Guyana--as in many other developing countries-- beginning in the 1970s. At first, loans were earmarked for development projects. But when rising oil prices adversely affected the balance of payments, Guyana began borrowing to finance imports. Guyana's foreign debt was unlike that of many other Latin American nations because most of it was owed to official creditors (loans from international financial organizations and foreign governments) rather than commercial institutions (loans from foreign banks). Roughly one-third of the debt was owed to the IMF and the World Bank, and one-fourth to neighboring Trinidad and Tobago. Other major creditors were the Caribbean Development Bank and Barbados.

In 1981 Burnham underlined the severity of the debt crisis when he authorized the government to stop making debt-service payments. Arrears on debt repayment and trade credits were simply allowed to accumulate. (Mexico's 1982 announcement of a similar moratorium on its much larger commercial debt sent shock waves through the international financial community.) Guyana's debt moratorium had two serious results. First, unpaid debts and interest payments compounded, leading to rapid growth in total debt. Thus, external debt increased from US$1.2 billion in 1984 to US$1.7 billion in 1987 even though Guyana received few new loans. Second, the buildup of arrears destroyed Guyana's credibility as a debtor. In 1983 the IMF refused to provide further loans; many other international organizations and governments followed suit. The loss of credibility also directly affected Guyana's trade relations: Trinidad and Tobago cut off oil shipments in 1986.

The debt crisis persisted during the 1980s as Guyana remained unable to resume debt service. The country consistently had a deficit in the overall balance of payments, and the government financed the deficit by accumulating even more arrears on debt service payments. By 1989 those arrears exceeded US$1 billion, or five times the value of annual exports. By the late 1980s, the debt crisis threatened to shut down the economy; even short-term trade credits were difficult to obtain. Venezuela began insisting on prepayment in bauxite in exchange for shipments of oil. It was mainly the debt crisis that led the government to agree to an IMFbacked austerity program in 1988.

Temporary debt relief arrived after Guyana agreed to enact the Economic Recovery Program. A Donor Support Group consisting of Guyana's major creditors (Canada, the United States, Britain, Germany, France, Venezuela, and Trinidad and Tobago) provided a bridge loan of US$180 million that enabled the government to pay off arrears to the IMF, the World Bank, and the Caribbean Development Bank. In addition, bilateral creditors agreed to reschedule major portions of Guyana's debt, such as US$460 million owed to Trinidad and Tobago. The complicated refinancing scheme, which was conditioned on rigorous economic reforms within Guyana, removed the massive arrears and allow Guyana renewed access to international financial support. The IMF and the World Bank extended new loans to Guyana in 1990 for infrastructure projects.

The restoration of Guyana's creditworthiness, however, did not signal an end to its debt problem. Interest payments on the debt were the largest expenditure in the 1990 budget. A priority for the government was to increase foreign currency earnings by expanding exports, but a large share of export revenues would have to be used to continue debt service. Thus, debt service absorbed scarce resources urgently needed for economic development. There was a possibility that Guyana would receive some measure of debt forgiveness from the United States under the Enterprise for the Americas Initiative (see Glossary), according to 1991 congressional testimony by Undersecretary of the Treasury, David Mulford. But there were few precedents for official debt forgiveness on the scale that Guyana's economy seemed to require.

Data as of January 1992

Guyana - TABLE OF CONTENTS

Guyana: The Economy


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