 |
|
SECTOR
Home | What's New
| About SECTOR | Meetings
| Publications | Discussion
Forum | Contact Us
| Links | Site
Map
|
|
|
SAP 2.84/WP.143
Structural adjustment and agriculture in Guyana:
From crisis to recovery
I. Crisis, 1976-88(1)
At Independence, in 1966, Guyana was among the more economically developed countries of the Caribbean, and throughout the 1960s real GDP grew at a yearly average rate of 3.6 per cent. In the 1970s, however, the economy began to stagnate, followed in the 1980s by a decline in real GDP of over 3 per cent per annum (Bynoe, 1997, p. 6), so that by 1988 real output was only two-thirds of its level in 1975 and Guyana had joined the ranks of the poorest countries in the region.
The reasons for this dramatic reversal resided in a combination of external and internal factors. Externally, the terms of trade shifted markedly against Guyana, deteriorating by almost 38 per cent between 1976 and 1985. This would have taxed any government in an economy in which imports comprised 60 per cent of GDP, but, for a number of reasons, the Government of Guyana was not willing or able to address that problem, and in fact pursued policies which actually exacerbated it (Ganga, 1988).
Controlled by Forbes Burnham's People's National Congress (PNC), the Government lacked electoral legitimacy. It had acceded to power only after the United States and the United Kingdom had moved to dislodge the more radical People's Progressive Party (PPP), the first openly Marxist party in the region to take power through the ballot box. The PNC remained in office until 1992 "only through a combination of force and fraud [which] it used to rig the national elections of 1973, 1980 and 1985" (Thomas, 1988, p. 251). Facing huge left-wing opposition, the PNC espoused policies of "cooperative socialism" in a bid to placate the masses, while all the time using the State to build up a national bourgeois class (ibid., p. 252). This involved nationalizing the main pillars of the economy -- the sugar estates and the bauxite industry, owned by multinational companies in the United Kingdom and Canada -- as well as local transportation, the import trade and finance. In its rhetoric, the Government aimed to feed, clothe and house the nation by 1976, and to promote cooperative ownership; in reality, it fell far short of these goals, but control of the State enabled the PNC to extend its authoritarian rule politically and to intervene more directly in the economy.
By the end of the 1970s, the Government claimed to be owning or controlling 80 per cent of the economy (Bynoe, 1997, p. 6). Apart from nationalization, which was unplanned and uncoordinated, economic intervention took the form of price controls, foreign exchange rationing, an overvalued exchange rate, and curbs on private sector activities and foreign trade. State economic entities were used to consolidate the political power of the ruling elite, rewarding supporters and penalizing or excluding dissenters. This economic pressure was combined with a resort to the police, army and security to restrict the right to free political expression, including the right to strike (Thomas, 1988, pp. 255-265).
The combination of severe external shocks -- from export commodity price falls, oil price increases and, later, interest rate shocks (Gafar, 1996) -- and an internal economic policy focus, which only peripherally, if at all, addressed issues of economic efficiency, growth, stability and equity, led to a crisis of production, and, ultimately, a fundamental political crisis. Table 1 outlines the major features of the economic crisis between 1976 and 1985. Real GDP fell by over one-fifth which translated in per capita terms to a decline of almost one-quarter, or at about the same rate as the nominal value of exports. Value added by the two principal export commodities, bauxite and sugar, fell by 67 and 11 per cent respectively, while manufacturing value added fell by almost one-quarter. Imports shrank 30 per cent in current dollar terms but given the huge deterioration in the terms of trade over the period, imports in quantity terms fell by 61 per cent. Capital goods imports fell dramatically, bottoming out in real terms in 1984 at a level of 83 per cent below that of 1976. Consumption goods imports fell by a staggering 65 per cent in nominal terms alone. Fuel imports, which accounted for 15 per cent of total imports in 1976, doubled in US dollar terms by 1985, at which time they accounted for 40 per cent of total imports.
Table 1. Economic crisis: Output and trade, 1976-88, selected years
| 1976 | 1980 | 1985 | 1988 | |||
| Real GDP (1976 = 100) | 100 | 94 | 79 | 77 | ||
| Real GDP per capita (1976 = 100) | 100 | 92 | 77 | 75 | ||
| Sectoral growth of GDP (1976 = 100)
Agriculture Mining and quarrying Manufacturing Construction Services |
100
100 100 100 100 |
98
86 108 75 96 |
99
46 76 66 85 |
91
43 59 69 80 | ||
| Exports (US$m) | 279 | 389 | 213 | 215 | ||
| Imports (US$m)
Capital goods Intermediate Consumption |
364
119 177 65 |
396
76 267 51 |
256
66 164 23 |
216
43 149 22 | ||
| Real imports (1976 = 100) | 100 | 62 | 39 | 31 | ||
| Terms of trade (1976 = 100) | 100 | 90 | 69 | 79 | ||
| Exchange rate (G$ to US$) | 2.6 | 2.6 | 4.3 | 10 | ||
| Parallel rate | 6.5 | * | 16 | 35.8 | ||
| Real effective ER (1990 = 100) | 545 | 823 | 176 | |||
| * = 1981.
Sources: IMF: International Financial Statistics, Public Sector Investment Program, 1991; IMF, 1989; Bank of Guyana, 1997a and 1997b; World Bank, 1992. | ||||||
Persistent deficits on current accounts were financed by foreign borrowing, which rose by US$1 billion over the period to US$1.37 billion by 1985, equivalent to US$1,817 per head of the population (table 2). The external debt burden rose from 82 per cent of GDP and 124 per cent of exports of goods and services in 1976 to 262 per cent of GDP and 557 per cent of exports in 1985, at which time just under one-half of all external debt outstanding represented arrears on principal and interest. These figures point clearly to a debt burden which had become totally unsustainable, and by the mid-1980s, Guyana had been cut off by most external funding agencies. The production crisis found reflection in a growing parallel market in which by 1985 the unofficial exchange rate reached almost four times the official rate -- and this despite a devaluation of some 53 per cent over the previous four years. An increasing proportion of output was driven into the underground economy, estimates ranging from 26 to 52 per cent in 1982 to 33 to 99 per cent in 1986 (Thomas, 1993, p. 145). Combined with the absolute fall in production, this put downward pressure on tax revenues and led to increasingly large budget deficits. The current fiscal deficit rose from 6 per cent of (official) GDP in 1976 to 45 per cent in 1985, by which time it was actually larger than total current revenues. The operating balances of public sector corporations also became negative in 1981 and remained so for five more years (Government of Guyana, 1991, p. 150). Once capital spending is allowed for and netting out transfers between central government and the rest of the public sector, the overall financing needs of the consolidated public sector rose from G$265 million in 1976, or 23 per cent of GDP, to G$1,208 million in 1985, or 62 per cent of GDP. Since over two-thirds of the financing needed was borrowed locally, mainly from the banking system, domestic credit expanded strongly. The money supply (M2) rose from 38 per cent of GDP in 1976 to 101 per cent in 1985. The inflationary impact of this was hidden to some extent by the existence of price controls in the official market but even then the measured rate of inflation rose from 8 per cent in 1976 to 15 per cent in 1985 and was much higher in the intervening period.
Table 2. Economic crisis: Finance, debt and inflation, 1976-88, selected years
| 1976 | 1980 | 1985 | 1988 | ||
| Balance of payments (US$m)
Current account deficit Public capital (net) Rescheduling Other Change in arrears Change in reserves |
-141
57 0 -7 0 91 |
-109
52 0 -41 17 81 |
-130
-57 56 -74 16 189 |
-100
-101 73 22 4 102 | |
| Current account deficit % GDP | 32 | 18 | 25 | 22 | |
| External debt (US$m)
As % GDP As % exports GS |
364
82 124 |
639
108 169 |
1 374
262 557 |
1 778
399 675 | |
| Debt service % exports
Scheduled Actual |
11.2
11.2 |
17
17 |
70.8
9.5 |
87.4
8.6 | |
| Fiscal situation
Current deficit % GDP Overall deficit % GDP Current revenue % GDP Current spending % GDP Capital spending % GDP |
6
34.6 34.3 40.2 28.6 |
10.8
30.4 29.9 40.7 19.9 |
44.9
64.5 39.4 84.3 21.4 |
29.9
51.3 40.9 70.8 23 | |
| Government bank borrowing % GDP | 21.1 | 19.2 | 35 | 30.5 | |
| Rate of growth of money (M2) % | 7.7 | 14.9 | 21.8 | 36.6 | |
| Rate of inflation (CPI) | 8.4 | 14 | 14.9 | 39.8 | |
| Source: IMF: International Financial Statistics, Public Sector Investment Program, 1991. | |||||
Data on unemployment and real wages are hard to come by, but partial evidence suggests that both employment and workers' real wages fell sharply. Total employment in the public sector, which was said to account for about one-half of total employment (IMF, 1989, p. 16), fell from 98,848 in 1980 to 75,947 in 1985, or by almost one-quarter, with central government employees bearing the brunt of this. The minimum wage in the public sector fell by 44 per cent between 1980 and 1985 alone (calculated by the authors from IDB, 1994, table 3.1.3). The average real wages and benefits of all workers in the sugar cane industry, GUYSUCO declined by 46 per cent between 1980 and 1985 alone.
Not that workers acquiesced passively to these developments. The period 1976-85 was rife with industrial strife. The number of strikes in the public sector rose from 284 to 718, the number of striking workers from 49,400 to 93,700, and workdays lost from 175,000 to 208,400. In most years, sugar workers dominated strike activity, but in 1979 and 1983 public sector workers in other industries too resorted to strikes (Government of Guyana, 1991, p. 130). Increasingly, though, many skilled and semi-skilled Guyanese dealt with the crisis by emigrating, mainly to North America, so that between 1981 and 1983, total population stagnated while from 1983 to 1990 it actually fell (by 0.4 per cent). The loss of skills is considered to have been an important factor in deteriorating public sector efficiency.
In 1985, Forbes Burnham died and was replaced by the more pragmatic Desmond Hoyte. The Government grappled with economic reform, including devaluing the Guyanese dollar (G$) by 56 per cent in 1987 and raising producer prices, which enabled GUYSUCO to run a significant operating surplus. The civil service was trimmed and incentives to private producers and traders improved, but the foreign exchange constraint was so tight that, relative to 1985, output continued to decline and per capita incomes continued to fall. The agricultural sector declined by a further 10 per cent over the three-year period, exports stagnated, and imports in quantity terms fell by a further 20 per cent. The balance of payments remained negative but at a level 30 per cent below that of 1985, only because access to foreign capital had begun to dry up as external payments arrears reached US$1.1 billion or 4.5 times the level of annual exports of goods and services, and total debt reached US$1.8 billion or over seven times annual exports (see table 2 again). Fiscal deficits remained high, at around 50 per cent of GDP, financed entirely by domestic borrowing, and this, together with the devaluation, raised the annual rate of inflation above 30 per cent by the end of 1987.
It was inevitable that the crisis would have a severe impact on the agricultural sector and those working in it. In 1976, agriculture accounted for almost 23 per cent of GDP, 53 per cent of exports, and an estimated two-thirds of total employment. The largest contributor to value added was sugar cane, followed by livestock, rice, a variety of other crops, forestry and fishing (table 3). Sugar accounted for 69 per cent of agricultural exports and rice for 20 per cent. Sugar is produced on large estates which were nationalized in 1976 and while large operators are to be found in rice, forestry and fishing, as many as 80 per cent of farms in 1978 (the last census date) were less than six hectares in size. Most agriculture takes place in the coastal plains which lie below sea level at high tide. Infrastructure for water control and drainage is therefore crucial to the prosperity of the sector.
The crisis in agriculture found a reflection in a fall in output, caused, in turn, by reduced incentives, a lack of imported inputs, a shortage of skills, and an erosion (literally) of necessary infrastructure.
By 1976, over 90 per cent of sugar cane production was controlled by the state-owned GUYSUCO, which also was responsible for sugar manufacturing and local and international marketing. Sugar production fell from 332,500 tons in 1976 to 242,100 tons in 1985, a drop of 27 per cent (table 3). When the average value of exports per ton is deflated by the rise in the consumer price index, real gross returns per ton fell by 63 per cent between 1976 and 1985. This was the result of the Government allowing the exchange rate to appreciate, equivalent to imposing an export tax on all exports. The amount of this tax can be calculated as the difference between the parallel rate and the official rate, divided by the parallel rate (World Bank, 1992, p. 3). In 1985, the upper bound of the implicit export tax was 73 per cent, up from 54 per cent in 1981, the earliest year for which figures exist, and unit production costs in US dollars were 29 per cent higher than unit export returns (table 3 again). In those five years, GUYSUCO ran operating deficits, which cumulatively amounted to G$462 million and exchange rate overvaluation must have been a major cause. The company's response was to lay off 4,700 workers over that period, equal to 15 per cent of its labour force.
The problems facing the sugar industry went well beyond price incentives, however. The industry suffered a loss of management expertise, partly as a result of the departure of the foreign companies but also as a result of salary restrictions, and difficult working and living conditions, which made other occupations and other countries more attractive. The sector faced a chronic shortage of foreign exchange for capital goods, fertilizers and insecticides and a shortage of financial resources for maintenance and investment at both field and factory levels. Cash shortages led to the deterioration of drainage and irrigation infrastructure and the abandonment of flood fallowing. Husbandry standards declined and the incidence of crop diseases increased. The sucrose content of sugar fell and unit costs of production rose, from US$469 per ton in 1980 to US$593 in 1990 (IMF, 1996, p. 35). The industry was also saddled with a sugar levy which penalized it when world prices deviated from European prices, as they did significantly during the 1980s. By 1985 the losses of GUYSUCO amounted to 4 per cent of GDP. Throughout the crisis years the industry also had to deal with acute industrial relations problems as real wages of workers plummeted and as the highly organized and politicized workforce confronted the State as the owner of the industry and the architect of economic and social policies with which they were increasingly at odds. Problems faced by the parastatals were mirrored by those faced by the smallholders -- i.e. the 2,200 farmers who produce 10 per cent of cane output on 12,000 or so acres of land (Bynoe, 1997, p. 65). The smallholders are represented by the National Cane Farming Committee and their output is sold to GUYSUCO. The problems facing sugar were, therefore, complex and multifaceted.
Table 3. Crisis in agriculture, 1976-88, selected years
| 1976 | 1980 | 1985 | 1988 | ||||
| Sectoral growth of GDP (1976 = 100)
Agriculture Sugar cane Rice paddy Fishing Forestry Other crops Livestock Manufacturing Sugar Rice |
100
100 100 100 100 100 100 100 100 |
a | 98
89 80 117 67 97 90 81 140 |
99
89 80 150 67 127 45 78 200 |
91
63 90 150 58 135 52 57 260 | ||
| Exports (US$m)
Sugar Rice Timber Shrimp Above as % of exports Bauxite Gold |
279
102 29 4 5 50 113 |
389
121 34 6 3 42 188 |
213
66 13 4 4 41 98 4 |
215
75 15 4 3 45 82 18 | |||
| Sugar industry
Acres cultivated ('000 ha) Sugar production ('000 LT) Yield per acre Unit value exports (US$) Unit production costs (US$) Days lost due to strikes, etc. ('000) |
134
333 2.48 166 |
119
270 2.27 512 469 61 |
118
242 2.05 308 398 208 |
106
170 1.60 511 n.a. 231 | |||
| Rice industry
Acres harvested ('000 ha) Rice production ('000 LT) Yield per acre Unit value exports (US$) Real G$ value of unit exports, 1976 prices Real price to grower (1985 = 100) |
322
215 0.67 401 1043 n.a. |
a
a |
237
166 0.70 415 601 120 |
b | 192
153 0.80 448 492 100 |
183
133 0.73 249 330 93 | |
| a 1977. b 1982.
Sources: IMF: International Financial Statistics, Public Sector Investment Program, 1991; IMF, 1996; Bank of Guyana, 1997a and 1997b; World Bank, 1992; FAO: Statistical data base, 1998. | |||||||
The second most important crop in Guyana, rice, is produced by some 15,000 small private farmers but the Government strictly controlled rice marketing through the Guyana Rice Marketing Board, replaced in 1985 by the Guyana Rice Milling and Marketing Agency (GRMMA) and the Guyana Rice Export Board. Rice exports suffered a similar undervaluation to farmers, the real price of export rice dropping by 53 per cent over the period, even though, as was shown in table 3, the US dollar price was rising. In addition, however, considerable quantities of rice were reserved for the domestic market at prices controlled by the State at much lower levels than the export price. Those prices, which were only 27 per cent of the export price in 1976, fell proportionately with the export price in real Guyanese dollar terms over the period. Since, by 1985, the share of local sales of rice had reached 59 per cent of the (official) total, up from 38 per cent in 1976, the average return to producers was even lower than the export values would suggest. The implicit taxation on rice in the decade of the 1980s has been estimated at between 60 and 100 per cent (World Bank, 1992, p. 4).
Though rice output fell by 28 per cent between 1977 and 1985, output did not fall steadily and the 1985 level was actually 38 per cent above the 1976 level (104,000 tons), suggesting a greater supply inelasticity than is the case with sugar and a lack of alternatives for small rice producers. Yields per acre rose steadily even as output declined, and by the mid-1980s, at 0.8 tons per acre, were a third higher than those of the mid-1970s. Until 1990, however, yields stagnated or fell as output continued to decline and smaller farmers leased their land to larger ones. While poor incentives played a role in reducing the output of rice (Gafar, 1998), so too did deterioration in water control and irrigation systems (World Bank, 1992, p. 14), poor coordination between the public sector bodies operating in the industry, milling problems, shortage of foreign exchange for inputs, adverse weather conditions and blight (Bynoe, 1997, p. 68).
Between 1976 and 1985 large reductions in output were experienced by most other agricultural commodities, including beef (56 per cent), pork (51 per cent), poultry (70 per cent), milk (74 per cent), eggs (12 per cent), and timber (46 per cent). There were, however, commodities whose output did increase, presumably because price controls and import constraints were not as binding. Thus, between 1976 and 1985, fish output increased by 165 per cent, while from 1981 to 1985 increases were recorded for coconuts, ground provisions, plantains, bananas and a variety of fruit and vegetables, many of which were commanding prices equivalent to those prevailing in New York (ibid., pp. 14-15). By 1990, however, it has been estimated that many of these non-traditional exports were also impeded by high implicit rates of taxation, from 10 per cent on oranges at the low end to 48 per cent on coconuts and 53 per cent on mangoes at the high end.
The early reforms of the Hoyte Government failed to stem the decline in the agriculture sector, with value added falling by 8 per cent between 1985 and 1988. Sugar and rice output fell significantly, as did their yields, and the world price of rice fell by almost two-thirds (table 3). Total export earnings were, however, stabilized by an improvement in the overall terms of trade for Guyana, which saw, in particular, the world price of sugar more than double.