Three election victories since the restoration of democracy and the constant haggle with the slings and arrows of an outrageous opposition, incensed that this Government is in power, people now are demanding that this Administration continues to sustain the belief in equality, in progress, and in the power of the community to achieve the good life.  The pundits of discord again have booted up and restarted the myth wagon of the Economic Recovery Period (ERP), purporting that the People’s Progressive Party/Civic (PPP/C) Government has coat-tailed on the ERP. 

This humbug will not do.  The ERP in 1989 was not Hoyte’s brainchild.  The ERP was instituted and driven by the World Bank and the International Monetary Fund (IMF), which radically reduced the Government’s role in the economy.  During that time, the country was economically bankrupt, as attested to by Finance Minister Carl Greenidge. 

Some aspects of the 1992 legacy

Baseline data providing useful comparisons with the past strengthens the evaluation of current programs and projects.  We have to know from where we start, in order to know how far we have come.  Knowledge of the past is a prerequisite for understanding the present and the future.  So here goes.

The PPP/C Government inherited a logistical nightmare in 1992.  This Administration in 1992 had to grapple with numerous constraints.  Guyana’s foreign debt was about US$2.1 billion; debt service payments amounted to 105 percent of current revenue; and the entire social services sector received a mere 8 percent of revenue.  In effect, funds were scarcely available to achieve sustainable external debt levels, never mind sustainable development.   

Since the early 1980s, the bauxite industry was a net user of foreign exchange coupled with high production costs.  A marked decline in the production of calcined and chemical bauxite started from 1989 during the ERP. 

Inadequate foreign exchange for chemicals and other needs, and low prices paid to rice farmers produced a crisis in the rice industry in 1988. Indeed, there was a crisis in the rice industry during the Hoyte era and during the ERP!!  In 1990, rice production was 93,000 tonnes, and 150,000 tonnes in 1991.  Compare this situation with 1999 when rice production reached 365,000 tonnes, 291,000 tonnes in 2000, and 321,000 in 2001.

When the PPP/C took office in 1992, sugar was imported from Guatemala.  In 1989, 167,000 tons of sugar were produced, with 129,000 tonnes in 1990.  Sugar tonnage reached 321,000 in 1999, 273,000 in 2000, and 284,000 in 2001. 

Given the impact of post-elections violence scenarios at all three elections since 1992 and the periodic violent protests over the years, it is not surprising that the specter of political instability is a rising star.  Despite such negativities, Guyana has experienced some sustainable growth and poverty reduction.  Poverty has fallen from 86 percent in 1991 to 35 percent in 1999.  The Gross Domestic Product (GDP) growth rates annually were 7.9%, 6.2%, 3.0%, and –0.8%, in 1996, 1997, 1999, and 2000, respectively. 

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The first half of 2002

We will present just a few indicators.  In the first half of 2002, real GDP increased by 2.9 percent, greater than the 1.3 percent increase for the same period in 2001. The balance of payments deficit, taken as a whole, was reduced from US$19.3m to US$10.6m, due to a significant decrease in the current account deficit. Today, therefore, it’s simplistic for critics to say that nothing much has been done.  The Guyana dollar marginally depreciated against the US dollar.  This currency stability was due to lower demand influence that may be explained through increased flows from the export market.  Interest rate payments on the domestic debt were reduced because of lower interest costs on maturing treasury bills.  The interest rate showed a downward trend.  The central government’s cash performance continued to show great strength, as revenue collections outmatched expenditure incurrence.

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Unavailable funding for infrastructural works

The enormous funding that was required to rehabilitate, and in some cases, reconstruct the ailing social and economic infrastructures inherited in 1992, was unavailable within the Treasury.  The foreign debt burden was of colossal proportions, and had to be reduced while at the same time making funds available for the social services sector, such as health and education. 

But the debt service obligations, too, were of such magnitude that they consumed more than half the country’s export earnings, leaving precious little for the social services sector.  Indeed, all social and economic development became problematic.  In order to move Guyana progressively forward, the PPP/C Administration very quickly realized that the traditional debt relief mechanisms (concessional lending, rescheduling, loans) were inadequate to achieve sustainable external debt levels. 

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Debt relief & investments as linked

Critics who conclude that the applications for debt relief, and in fact, today more progressive debt relief, constitute global begging, are naïve about administering a national economy, and short on practical details on how to improve the social services sector in the interim.  Government is also fully cognizant of the process of securing investments and this process is actively being pursued. 

Attracting both domestic and foreign investments continues to be the norm of the PPP/C Government.  But investments translated into revenues have a protracted lead time in many cases.  So while the effort exerted to attract investments is an ongoing process , the need to make debt payments and sustain an adequate social services sector requires funds not immediately available within the economy.  Hence, the need to, initially, seek traditional debt relief packages.

Simultaneously with the process of securing investments, Government also is seeking debt relief linked to structural adjustment policies geared toward producing sustainable debt levels, sustainable growth rates, and poverty reduction.  This type of debt relief is progressive and has a human face.

The Government, therefore, aggressively sought out the more progressive debt relief packages.  The PPP/C Administration moved quickly and timely to be the recipients of substantial debt relief that compares favorably with the 77 countries eligible for the Poverty Reduction and Growth Facility at the end of February 2001. 

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Explaining traditional debt relief

A few explanations for these debt mechanisms follow.  Prior to 1996, concessional lending was the norm in providing financial aid to developing countries.  Notwithstanding these favorable terms, many poor countries experienced problems making their debt payments, as many of them did not achieve appropriate growth rates in subsequent years.  There, therefore, was a need to introduce new ideas and mechanisms.  Believing that the debt service difficulties of poor countries were temporary, the French Treasury invited creditor governments to form a committee to reach a consensus on the debt relief needed for poor debtor countries, and to ensure that all creditors offered similar terms as agreed by the committee.  This committee became known as the Paris Club.  Guyana benefited, but needed more help in reducing debt service payments, in order to achieve sustainable growth and poverty reduction.

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HIPC and Enhanced HIPC

However, by the mid-1990s, it was clear that the traditional debt relief packages were not succeeding, as they were still insufficient to reduce debt to sustainable levels.  In 1996, the International Monetary Fund (IMF) and the World Bank presented the Initiative for Heavily–Indebted Poor Countries (HIPC).  The HIPC Initiative was set up to solve debt problems of the heavily-indebted poor countries which had a total debt of US$200 billion.  Also, the HIPC Initiative tries to make some funds available to social sector programs, especially basic health and education. 

The HIPC Initiative was modified in 1999 to give faster, deeper and broader debt relief and reinforce the connections between debt relief and policy reforms to increase long-term growth and achieve poverty reduction.  This modification initiated the Poverty Reduction Strategy Paper (PRSP), approved by the World Bank and the IMF in 1999 as part of the Enhanced-HIPC.

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Requesting assistance through the HIPC Initiative

In order to be considered for HIPC assistance, a country must experience an unsustainable debt burden, and have a track record of reform and good policies as determined by the IMF and the World Bank.  Then a debt sustainability analysis will be completed to determine the current external debt.  If the existing external debt ratio for the applicant country exceeds 150 percent of the net present value of the debt to exports, it will qualify for HIPC assistance.  The next stage is to determine the country’s eligibility to request assistance, and this step is referred to as the Decision Point. 

Here, an eligible country will have to adopt, in addition to the IMF and World Bank-supported structural reforms, a Poverty Reduction Strategy Paper (PRSP), using a national participatory process, by the Decision Point.  Guyana has recently adopted the PRSP which involved broad-based national consultations, so Guyana really is at the Decision Point.  In fact, Guyana already was at the Decision Point when it developed the Interim-PRSP which presented the Government’s plans to develop a PRSP.  Reaching the Decision Point of the Enhanced HIPC Initiative means that Guyana will have debt relief of US$590 million for the next 20 years.  Guyana had previously received US$440 million under the original HIPC Initiative.

At this Decision Point, the Executive Boards of the IMF and the World Bank will make a determination on the country’s eligibility.  Here, the country will continue to receive financial aid until the process reaches the Completion Point. At this point, the PRSP will have to be implemented.

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Benefits through the HIPC Initiative

Guyana has benefited and will continue to benefit from HIPC.  At the end of 1999, Guyana’s debt stock was reduced to US$1.1 billion from US$2.1 billion in 1992, and since Guyana has now arrived at the Decision Point in the HIPC process, it is estimated that this foreign debt will further be reduced to US$800 million.

For the Enhanced HIPC Initiative currently benefiting 24 countries, debt service reductions for the period 2001 through 2003, are estimated as follows: will on average be about 30 percent lower than the debt payments made in 1998-99, will average 8 percent of exports, and will average 12 percent of government revenue.  Keep in mind that debt payments in Guyana in 1992 were about 105 percent of government revenue, and 50 percent of exports.  The following table illustrates the benefits accruing to a country eligible for the Enhanced HIPC.

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Debt Relief under HIPC2

Source: Panos: Reducing Poverty, p. 5

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Investments

By December 2000, Guyana attracted 55 investments, according to GO-Invest.  In the period 1997 through 2000, 35 companies were set up, 11 expanded, and 9 were rehabilitated.  These investment projects circulated about $38 billion throughout the Regions in Guyana.

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The social services sector

The Guyana Government has scored masterfully through its debt relief and securing investments within a global economy slowed down by recession.  The social services sector, especially health and education, has received a sustained boost.  Evidence of this enhancement in education can be gleaned through its public expenditure as a percentage of the National Budget, thus, 7.3(1996), 6.8 (1997), 11.9 (1998), 11.6 (1999), 11.7 (2000), 16.5 (2001) and 17.2 (2002).  The growth percentages for health follow: 6.3 (1996), 7.3 (1997), 5.9 (1998), 6.7 (1999), 5.7 (2000), 7 (2001) and 8 (2002).

In 1992, the entire social services sector received 8% of the National Budget.  Guyana, indeed, has come a long way since 1992, gradually sanitizing and eliminating the legacy of the 1968/1992 years.

Acknowledgements are given to several IMF & Jubilee documents in explaining the HIPC Initiative process.

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