H.E. Bharrat Jagdeo, Guyana's Finance Minister, June 30, 1999

The debt service burden in 1992 consumed a disproportionate amount of the country's revenues, leaving very little for social infrastructural works, as in education, health, and human services. Guyana was poor in 1992. Its poverty over the subsequent years was compounded with post-elections violence and ethnic trauma. And today, some analyses of Guyana exclude discussions on the horrendous inherited 1992 debt burden. Any such exclusion will produce a biased analysis.

Notwithstanding three election victories since the restoration of democracy, the constant haggle with the slings and arrows of regular outrageous commentaries, and the lyrics of some groups incensed that the People's Progressive Party/Civic (PPP/C) has again formed the Government, the masses are consistent in their demands that this Administration continues to sustain the belief in equality, in progress, and in the power of the community to achieve the good life.

Today, too, the pundits of discord and contemptible commentaries again have booted up and restarted the myth wagon of the Economic Recovery Period (ERP), purporting that the PPP/C Government has coat-tailed on the ERP.

Serious research studies already have demonstrated that 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.

Despite concessional lending to meet its debt obligations and increased economic growth rates between 1993 and 1997, the sordid and disturbing impact of social infrastructural devastation at the 1992 baseline, urgently required a new dynamic and comprehensive strategy to sustain Guyana's debt burden, if the masses are to receive any meaningful social services. For those who think that Guyana was in fine shape in 1992, need to reexamine their bias. Guyana was one of the poorest countries in the hemisphere in 1992. This level of poverty was only one of the factors that qualified it for the Heavily-Indebted Poor Countries (HIPC) Initiative. The World Bank explains the HIPC Initiative eligibility thus:

"WHICH COUNTRIES QUALIFY?
The poorest countries, those that are only eligible for highly concessional assistance from the International Development Association (IDA), the part of the World Bank that lends on highly concessional terms, and from the IMF's Poverty Reduction and Growth Facility (previously the Enhanced Structural Adjustment Facility). Those that also face an unsustainable debt situation even after the full application of traditional debt relief mechanisms (such as application of Naples terms under the Paris Club agreement)."

Therefore, those who think that Guyana was on the brink of an economic take-off in 1992 need to experience some rethinking. However, prior to explaining Guyana's involvement in the HIPC Initiative, it's important that we understand the 1992 legacy. This approach is not intended to heap scorn on any party; its mere aim is to sketch the baseline economic situation in 1992.

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 and where we have to go. 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. The new 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 tonnes in 2001.

When the PPP/C took office in 1992, sugar was imported from Guatemala. In 1989, 167,000 tonnes of sugar were produced, with 129,000 tonnes in 1990. Sugar tonnage reached 321,000 in 1999, 273,000 in 2000, 284,000 in 2001, and 331,057 tonnes in 2002.

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 has been 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%, 1.9%, and 1.1% in 1996, 1997, 1999, 2000, 2001, and 2002, respectively.

Economic performance in 2002
We will present just a few indicators. In 2002, sugar reached its highest production level of 331,057 tonnes since nationalization, an increase of 16.4%. Poor weather conditions and financial problems created a dearth in rice production where production fell by 10.7% to 287,755 tonnes.

As a result of new investment, expanded capacity, and local market protection, livestock grew by 5%. Poultry meat rose by 33.6% to 16.7 kilograms. Egg production fell by 32.3% to 17.4 million units.

Raw gold production of small miners increased by 15.1% to 117,240 ounces. Omai Gold Mines' production level was 339,798 ounces, a decline of 8.8% from 2001. Diamond production increased by 34.8% to 248,436 carats. Bauxite production fell to 1,630,244 tonnes, due to depressed prices, excessive production costs, and financing problems.

Manufacturing increased by 2% in industrial goods (neutral alcohol: 78.3%; stockfeed: 20.2%; paints: 6.2%.), in beveraged goods (stout: 37%; malta: 11.6%; rum: 10.2%), and in edible goods (snack foods: 96%).

The service sector did well in transport and communication, showing an increase of 4.5%.

Under the balance of payments, the current account deficit got better by 17% reaching US$106.7 million deficit. Exports of goods increased by 1% to US$494.9 million. Export revenues from sugar were US$119.5 million or 9.4% greater than in 2001. Gold export earnings were US$136.3 million, representing an increase of 7.3%. Timber export earnings were US$35.6 million, showing an increase of more than US$3 million. Rice export revenues fell by 9.6% to US$45.4 million. Bauxite export earnings also declined to US$35.3 million from US$61 million in 2001.

Compared to 2001, merchandise imports fell to US$563.1 million, that is, a 3.6% decline. These imports included consumption goods, intermediate goods, and capital goods.

The capital account had lower net inflows of US$88.7 million compared toUS$115.3 million in 2001. This decline occurred because of a reduced disbursement of public sector loans and lowered private capital inflows. The balance of payments' deficit was US$25.1 million and financed through the HIPC initiative debt relief inflows.

The monetary reserve was $36.3 billion, showing a 10% increase from 2001. The increase could be seen in the net domestic assets which grew to $11.7 billion. The net foreign assets of the Bank of Guyana increased by 4.5%, and currency circulation and private sector deposits rose by 5.5% to $98.1 billion. Residents' total deposits grew by 9.5% to $8.8 billion.

The Guyana dollar marginally depreciated by 1.2% 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 91-day Treasury Bill rate, a baseline for other interest rate growth, fell by 2.34 percentage points to 3.91%.

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 and still meet the needs of social and human services.

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.

Explaining traditional debt relief
A few explanations for these debt mechanisms follow. Prior to 1996, concessional lending and loan rescheduling were 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.

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 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 a new condition called the Poverty Reduction Strategy Paper (PRSP), approved by the World Bank and the IMF in 1999 as part of the Enhanced-HIPC. The idea is to ensure that funds made available from debt servicing are utilized to eliminate poverty.

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 already has adopted the PRSP which involved broad-based national consultations, so Guyana really is at the Decision Point. In fact, Guyana previously 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 as to whether or not it has reached Completion Point. Hopefully, during this week, the World Bank may make a decision on the status of Guyana's Completion Point. However, until this occurs, the country will continue to receive financial aid until the process reaches the Completion Point. At this stage, the PRSP will have to be implemented.

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 26 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.

Debt Relief under the Enhanced HIPC
Country

Estimate debt payments without HIPC in 2005($ millions)

Expected debt payments with HIPC in 2005 ($ million)

Debt service- to- export ratio in 1999, 2000 or 2001

Expected debt service-to- export ratio in 2005

Let's examine how the Enhanced-HIPC (HIPC2) helps poor countries. Guyana, for instance, without the aid of HIPC2, would incur US$103m in 2005 in debt payments; its debt payments with the assistance of HIPC2 in 2005 would amount to US$43m; Guyana's debt service-to-export ratio without HIPC2 in 2001 was about 10.1, and with HIPC2 in 2005 is expected to be 5. Considerable sums, therefore, would be available from debt servicing for allocation in programs and projects aimed at reducing poverty.

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.