From mismanagement to prudent, sound economic stewardship
Guyana Chronicle
October 13, 2003
Guyana was by 1992 considered a basket case. The country was bankrupt. The multilateral financial institutions were begged by the PNC to return to bail out the economy. 80% of the population lived in near starvation and the cost of living was skyrocketing. Three years prior to the election of the PPP/C, the dictatorship imposed an Economic Recovery Programme (ERP). For the masses, the ERP brought them Empty Rice Pots. The economy was in a state of shambles.
When the PPP/C entered government, it found an empty treasury and inherited economic policies that were doomed to take Guyana further into the abyss of poverty and destruction. The economy had to be salvaged. The alliance soon found this to be one of its toughest challenges which is yet to be fully overcome eleven years later. Upon its election, the government went to work on rebuilding the economy. Now Guyana's economy is in a far healthier state. But decades of bad policies, economic mismanagement and corruption cannot be corrected in such a short period. Economists have noted that there are certain key macro-economic indicators that give a fair picture of the state of any economy. A cursory look at these indicators without getting into any economic analyses would confirm the extent of the economic decline at 1992 and the remarkable recovery made during eleven-year period.
GROWTH RATE
The decade before the PPP/C came into office saw the economy experiencing negative growth rate. Even the last PNC Finance Minister Carl Greenidge was forced to admit, in consecutive budget speeches, the deteriorating state of the economy. As expected Greenidge did not concede that the underlying causes were mismanagement, bad policies, rampant corruption and the lack of confidence in the then government by the donor community and multilateral financial institutions.
Almost miraculously, the entrance of the PPP/Civic saw an immediate period of sustained growth. The economy since 1992 has been growing at an average rate of about 5% per annum, notwithstanding two years of down turn caused by the post-1997 PNC organised political unrest, bad weather and unfavourable market conditions for Guyana's main exports. The management of Guyana's economy has been applauded by the World Bank, the International Monetary Fund, the Inter-American Development Bank and the Caribbean Development Bank. These institutions would only support economic programmes if they are convinced that the economy has been managed in a prudent and sensible way. The IMF on September 5th this year, in completing a review on Guyana's economic performance, observed: "Guyana has faced significant challenges since the start of its reform programme in September 2002; including a more difficult political and security situation....The Executive Board commended the authorities for regaining reform momentum. Implementation of the programme should lay the basis for sustainable growth and poverty reduction."
INTEREST RATE
At 1992, the interest rate at commercial banks was above 36% per annum. This was unreachable for many businesses. Borrowing at commercial banks was very low. The economy was stagnated. There were no real economic activities. The high interest rate caused by bad fiscal policies made borrowing prohibitive. In order to avoid the high interest rates, the PNC arranged special loans worth billions of dollars for some of its members and cronies from the now collapsed state-owned GAIBANK. These sums cannot be recovered.
Eleven years with the PPP/C saw the interest rate slashed. Lending rates now stands between 14% and 18% per annum. The number of lending institutions has doubled since 1992. And the loan portfolios of these banks have jumped. There are still concerns about the gap between the savings rate which is at an average of 3% and the lending rate. Commercial banks do boast about their annual profits which is a positive indicator. Importantly, credit is available to micro-enterprises at concessional interest rates by certain institutions as low as 11% per annum.
INFLATION RATE
Just before the PPP/C came into office, the rate of inflation was about 100%. Put simply, the cost of living was climbing at about 100% every year. Guyanese could not afford the few items which were available at that time. The country was still reeling from the ban on essential food items such as cooking oil, potatoes, split peas, wheaten flour, cheese and many other basic items. The cost of living was so high that purchasing power of many Guyanese was eroded by the day.
Since 1992, the average rate of inflation has been below 5%. Most goods and services are now available and affordable. Guyana is now a favourite shopping destination for persons from the Caribbean. Surinamese now source many of their goods and basic food items from Guyana. The opposite took place before 1992.With a low inflation rate and decent wage increases, which has been about 600% since 1992, the purchasing power of Guyanese has been growing.
EXCHANGE RATE
The last seven years of the PNC regime saw a collapse of the Guyana dollar. In 1985, the exchange rate was G$4.30 - US$1. By 1992, the exchange rate deteriorated to G$125 - US$1. This represented a devaluation of three thousand (3000) per cent. The impact of this slide was horrendous. Hundreds of thousands of Guyanese lost all their savings and assets. Many who were living a decent life got up the next day in abject poverty.
For the PPP/C 11 years, the exchange rate has shifted from G$125 - US$1 to G$193 - US$1. This represents a small decline of about 50% in the eleven-year period. This is happening at a time when many currencies of stronger economies lost their value by thousands of percentage points against the US dollar. Argentina, Brazil, and Suriname are recent examples. Even in a hostile world economic environment with currency collapse, the Guyana dollar has remained relatively stable. And the Gross Foreign Reserves has also been growing. In 1992, the reserves stood at US$191M. Eleven years later, the reserve is over US$300M.
There are many other indicators which Economists can sift through to confirm the consistently improving state of the Guyanese economy and its impact on the standard of living. The Government's strongest critic would admit that the economy is in a far healthier state than it was in 1992. No one has declared that the economy is without any difficulties. But admittedly it is constantly growing and improving. The reason: prudent and sound economic management.
(The author is the Information Liaison to the President and a leader of the PPP)